The dangers of ditching vouchers

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The way in which the Government has chosen to deliver the Tax-Free Childcare scheme could have implications for providers and parents, warns Fiona Shields.

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It has been a big week in childcare policy. On Tuesday, the Government announced three flagship policies to help parents access affordable and quality childcare. The extension of the pupil premium to the early years should be welcomed – it is a step in the right direction. Similarly, covering 85 per cent of childcare costs for parents receiving Universal Credit will help those most struggling. Tax-free childcare, however, presents a different story.

This new scheme will be introduced from autumn 2015, should the relevant systems be built in time. Over the following years, it will be responsible for phasing-out the current childcare voucher scheme, which will be closed to new entrants upon the introduction of tax-free childcare.

While elements of the new scheme must be welcomed – it equates to more support for some parents and help has been extended to the self-employed – all this must be understood in the context of the wider implications of the scheme. In other words, while the headline news sounds good, the way in which the Government has chosen to deliver the scheme could have important consequences for childcare providers and parents alike.

For providers, the scheme will introduce a new layer of complexity into funding streams. Nurseries will continue to receive funding from the childcare voucher providers, as well as National Savings & Investments – the quango appointed to administer the new scheme. This is a direct result of the Government’s decision to award the running of tax-free childcare to a sole body that has no prior experience in interacting with childcare providers.

Secondly, the decision to wholesale remove the employer from the delivery of tax-free childcare could have implications on payment timings to nurseries. Running the scheme through the employer, as happens with childcare vouchers, ensures that payments are made to childcare providers on time. The new scheme will rely on both parents and Government putting money into an account before the funds can be transferred to the childcare provider. This could, obviously, build delay into the payment of providers.

Finally, for parents, the new way in which the Government has chosen to deliver tax-free childcare could have significant implications for simplicity and usability. Government acknowledged in its original consultation on the design of tax-free childcare that the childcare voucher market had been vital in ensuring the success of the scheme.

It has driven up customer service and improved the experience of the parents and employers who so value the scheme. Indeed, an independent analysis commissioned by Government suggested a market for providers of tax-free childcare would be the best way to guarantee the greatest benefit to parents.

Despite this, Government has chosen to operate tax-free childcare through a single government body. This removes choice for parents and may well hamper their experience of the scheme. Combined with more onerous eligibility criteria, this increased complexity could significantly parental reduce take up of the scheme, and as well as funding to nurseries.

While only time will tell if Government can circumvent these concerns, they raise interesting questions for those who will be most reliant on tax-free childcare – the professionals and parents on whom the scheme will impact most.

  • Fiona Shields is chair of the Childcare Vouchers Provider's Association
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