More Childcare Support Is Welcome, But a Simpler System Is Essential
Increased childcare support for working parents is a positive step, but the Government should consider replacing the cumbersome voucher scheme with a simple tax break.
Amid reports that Prime Minister David Cameron will today announce assistance of up to £2,000 a year, Civitas said a system based on income splitting would give parents more freedom over the arrangements and would be better for the economy.
Anastasia de Waal, Deputy Director and Director of Family and Education at Civitas, said: “As money has become increasingly tight for families, greater flexibility for how they handle their work and childcare arrangements is more important than ever.
“It is good to see the Government doing more for working families through childcare vouchers, even though the additional help falls short of what many will be hoping for.
“But at least in the longer term the Government should consider a more straightforward system of tax breaks which can be shared between the two parents, enabling them to better juggle the demands of work and family.
“The main problem with the Government’s support at the moment is that it gives a tax break to couples so long as they pay someone else to look after their children.
“It would be better – for both children and the economy – if the Government let parents keep more of the money they have earned so that they can decide whether to care for their own children or pay someone else.”
The French system of income-splitting allows couples to reverse roles or to share working and caring as they believe best. The ‘quotient familial’ allows people to split their income between parents and their children. An adult counts as one unit and a child half a unit so that a couple with two children would be able to divide their income between three units.
How this could work in Britain: The UK personal allowance is about £8,000. For a couple with two children and a single breadwinner earning £30,000, income splitting on the French formula would allow the total to be divided into three units of £10,000. If each unit benefited from a tax allowance of £8,000, the family would pay income tax on only £6,000. At present, with one earner and a total income of £30,000 income tax of 20 per cent would be paid on £22,000.
That would mean that if, for example, the father works 30 hours a week, cares for the children one day a week, and earns £20,000, while the mother earns £10,000 and cares for the children for four days, their tax liability would be the same whether the father worked full-time and the mother was a full-time carer, or if they reversed roles completely. Under the current system in the UK, the mother’s personal allowance would be unused if she had no earnings.
Civitas publications which explore the idea of income-splitting include:
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Civitas: Institute for the Study of Civil Society is an independent Westminster think tank which receives no state funding and has no links to political parties