Think tank calls for Government supported “use now, pay later” scheme for childcare

8 February 2012

Parents should be able to access financial support of up to £10,000 from the Government to pay for childcare which they would then pay back as monthly contributions made through the tax system, a think tank has said today (Wednesday 8 February).

The Social Market Foundation’s report, A Better Beginning, proposes a ‘National Childcare Contribution Scheme’, which would use the Government’s low cost of borrowing to help parents overcome the huge financial burden of childcare. The scheme would extend the benefits of formal childcare to more children and families, without creating additional costs to the Exchequer.

SMF Director Ian Mulheirn who co-authored the report said “Childcare costs impose a huge burden on families for a relatively short period of time. This has a real impact on families’ household budgets and can mean that it’s simply not viable for some parents to go to work, despite the real benefits to both their earning power and their children’s development offered by formal childcare.

“By helping parents spread the cost through manageable monthly contributions, this innovative scheme can help parents do what’s best for themselves and their children.”

The SMF paper comprehensively models how a National Childcare Contribution Scheme would work and recommends that the scheme adopt the following features:

  • All working parents with a child under school-age would be eligible;

  • Parents would be given the money up-front by Government through a voucher scheme and would then use a smart card to pay for childcare at a high quality formal childcare provider;

  • The main earner would start paying back the contribution at 6% of their gross income above the income tax personal allowance (£8,105 for 2012-13);

  • Parents would stop the monthly payments once they have paid back the amount in full or after 20 years;

  • An interest rate of 3% above inflation would be applied.

Ian Mulheirn continued: “Our model would ensure that support is provided when families need it and they would only pay back when they can afford to.” 

The SMF’s idea has support amongst parents with children under five-years of age. A YouGov poll of parents with children under five-years-old found that 57% who expressed an opinion thought that the scheme was a good idea. A quarter of parents not currently using childcare and 28% of parents relying on friends or family said they would use the scheme if it were available.

Ian Mulheirn continued: “The high cost of formal childcare effectively locks thousands of parents out of work each year and costs are set to continue to rise. This is bad for families and bad for the economy, but in the context of tight public finances more public spending on childcare is simply unrealistic in the next few years. Our scheme offers a viable, practical and fair alternative, and is a fantastic example of how Government can help families in tough times without incurring additional spending commitments.”

The Social Market Foundation recommends that the new scheme be implemented after a pilot and is presenting the findings of its research to the three main political parties.

Notes to Editors

  • A Better Beginning is by Ryan Shorthouse, Ian Mulheirn and Jeff Masters and kindly sponsored by the Esmée Fairbairn Foundation.

  • The report will be launched at an event in Westminster on Wednesday 8 February by Rt Hon Liam Byrne MP, Claire Perry MP and Anushka Asthana, Chief Political Correspondent at The Times. Book your place here
  •  All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 502 parents of children under 5. Fieldwork was undertaken between 3 - 7 November 2011.  The survey was carried out online.

  • Using the Family Resources Survey, a nationally representative survey, the SMF modelled the scheme take-up and contributions for a cohort of eligible families in order to design the parameters of the National Childcare Contribution Scheme.

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