Tax free childcare is finally due to launch next month, but will the ship leave harbour?

9th March 2017 by Steve Herbert

Yesterday the Chancellor confirmed that the government “flagship” policy of Tax Free Childcare is still intended to launch in April this year.

Some may argue that this action is well overdue.  This new policy has been awaiting its maiden voyage since it was first announced by the then Coalition government way back in 2013, and the intervening period has been beset with delays and alterations to the intended offering.  Indeed – even as I write this article – it is notable that no detailed update from the government has yet been published on their website.  This is strange for an important policy that goes live in less than one calendar month.

Despite this it should be acknowledged that the ambitions of Tax Free Childcare are both a noble intention and sensible business transaction for HM Treasury.  The government are aware that working families struggle with the high cost of paid childcare in the UK, and that this is forcing many parents to reduce working hours or leave the workplace altogether.  This is obviously bad for the family’s income, and equally bad for the Treasury coffers given the loss of tax receipts and likely increase in state benefit payments for the family unit.

A previous Labour government had already looked to tackle this issue with the introduction of Childcare Vouchers.  This policy provides a valuable level of state financial support towards paid childcare costs, but is only available to employed parents.  Tax Free Childcare is intended to solve this problem by being available to both employed and self-employed families.

Yet a completely unconnected policy announcement by the Chancellor yesterday has the potential to tarnish the reputation of Tax Free Childcare before it even leaves the slipway.

The Chancellor’s controversial decision to increase National Insurance (NI) for the self-employed may indeed be justifiable on many grounds (and in particular the link to improved state pension rights in recent years), yet some government-supporting commentators were using the introduction of Tax Free Childcare as a justifying factor for the NI increase.  As such, they have linked a well-intentioned and pragmatic flagship policy to a much more difficult political debate, and this could yet be detrimental to the image of Tax Free Childcare.

So it remains to be seen if Tax Free Childcare will sail away into the sunset and become the success first envisaged in 2013.  It will also be interesting to see if the policy morphs over time to perhaps incorporate other “care” costs.

In the meantime it is worth highlighting that in the 2017/18 year both Tax Free Childcare and Childcare Vouchers (which sometimes offers greater level of state financial support to working families) will be available to employed parents in the UK.

Steve Herbert is Head of Benefits Strategy at Jelf Employee Benefits