Childcare vouchers - a death greatly exaggerated?

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Overview


George Osborne announced in his Budget that the government is soon to support childcare costs for working parents in an entirely new way. At present, tax-efficient childcare vouchers are only available to parents when their employer has chosen to offer this facility. From 2015 this changes, with most parents able to register directly with a new online system to receive similar levels of tax relief on their childcare costs. It is hoped that this approach will widen access, allowing more parents to benefit from state support in the funding of childcare.

There is clearly a cost implication to the Treasury of this new approach, and Mr Osborne only has very limited funds available for such a grand gesture at present. It has therefore been announced that some of the funding for the new system will be generated from the scrapping of existing childcare voucher schemes.

So against this background, and with more than two years until the new system is installed, where does that leave employers who already offer childcare vouchers, or indeed the hundreds of thousands of employees who currently benefit from this facility? Or to put in another way, should employers continue to offer the existing childcare vouchers to their staff, in the full knowledge that the offering will be withdrawn in the not too distant future?

It’s a valid question, but employers should be aware that there are at least five good reasons to continue to offer this facility at present:

  1. The proposed changes are still two full tax years away. Those employees who do already use childcare vouchers will not want, and may not be able to afford, to lose the generous tax reliefs that this facility offers. Childcare vouchers are worth around £900 per parent, per year, so continuing to allow access to the vouchers remains important until the new regime comes into force.
  2. The new childcare support system is to be available to single-parent families, and families where both parents work. However, a family with two parents and only one earner will be excluded from access to this facility. This is an important difference, and actually means that families in this position could be much worse off under the new system than currently. To mitigate this concern, it has been indicated that those already saving in childcare voucher schemes will be able to continue their membership of the existing scheme even after the new system starts. It’s therefore very important for this grouping that the existing facility is maintained until, and beyond, 2015.
  3. Another key difference between the current and proposed systems relates to the age of the child. The new vouches are initially only to provide for childcare for the under-fives, whereas the existing vouchers are for school age childcare needs up to age 15. As with 2. above, families that wish to retain coverage for higher ages may be better served retaining existing childcare voucher models rather than using the new system in 2015.
  4. Remember that one of the reasons that these schemes became so popular is that they cost the employer very little to install. Indeed the mechanism used to generate the tax advantages (salary sacrifice) also generates a National Insurance saving for the employer. These savings will continue for as long as the scheme has active members, so it could actually be financially beneficial for the employer to retain the existing scheme.
  5. Finally, and not least, in these difficult times every penny counts for hard-pressed families. Whilst the childcare voucher scheme may have relatively few members, for those participating it could be of huge importance. To take this away purely as an administrative simplification would be deeply unsympathetic to such families, and could damage employee relations and engagement. And in a worst case scenario, an employee may be unable to continue in their job without the additional financial support that vouchers provide.

So there are plenty of hard facts to support retaining the existing childcare voucher scheme. Yet there is one more area that employers may like to consider before making a decision.

Although the policy was announced in the Budget, it does not follow that it will actually happen. The 2012 Budget witnessed several policy U-turns, and it’s therefore possible that the final policy detail may be quite different from the current proposals. And, of course, the new system is targeted to take place only after the next election, so it’s still possible that a future government could veto the entire concept.

So the prudent employer may well consider that retaining the existing scheme until 2015 is perhaps the best response to this issue. Only then will we know if the death of childcare vouchers has been exaggerated or not. 

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