Budget should be child’s play for Chancellor

The Chancellor of the Exchequer is coming under pressure to cut childcare costs in his Spring Budget. Backbench MPs and business groups have demanded that Jeremy Hunt both supports parents with costs and eases the path back into the workplace for those with children to care for.

 

Rising childcare costs

The UK has the third highest childcare costs among developed countries, with only Slovakia and Switzerland being more expensive, according to the Organisation for Economic Co-operation and Development (OECD).

In the past five years, those costs have risen by an average of 21% across the UK, according to a recent report by the think tank Onward. It found families now spend more than 25% of their joint incomes on childcare, compared with an OECD average of just 9%.

 

Backbench pressure

A group of Conservative MPs are now pushing the Chancellor to cut the costs of childcare at next month’s Budget.

Robin Walker MP, Chair of the Education Select Committee, said:

There is quite a groundswell of opinion that this is something we need to be doing more about. Everyone agrees that childcare needs to be made to work better, even if they have a range of opinions on how to do so.

The group want Mr Hunt to relax regulations that they say could help more people join the childcare industry and allow parents to claim the benefits that they are entitled to.

One demand is that the government makes it easier for parents to apply for the Tax-Free Childcare (TFC) allowance that they are entitled to. According to the Treasury, only around 20% of eligible people are signed up to the scheme, which is worth up to £2,000 a year.

They also want to change the childcare element of Universal Credit, so parents do not have to pay as much upfront before claiming it back. Members of the group have also suggested eliminating business rates for private childcare providers, with a recent report by the National Day Nurseries Association finding the average nursery paid about £13,000 in business rates last year.

 

Free childcare hours

In addition to these demands, the Confederation of British Industry (CBI) is calling on Mr Hunt for support in helping parents back into work with free childcare hours for one and two-year-olds.

The CBI says an independent review of the UK childcare system is long overdue and that deepening and expanding childcare support would help get more people back into work.

According to the CBI, 75% of firms say they have been hit by labour shortages in the last 12 months.

It also says the Chancellor should widen the scope of health support as a non-taxable benefit in kind and helping individuals to re-skill throughout their careers and as they return to work by launching a two-year pilot, which aims to turn the Apprenticeship Levy into a Skills Challenge Fund. 

Louise Hellem, the CBI’s Director of Economic Policy, said:

Too many people still find it unaffordable to go back to work in the early years, so government needs to look at providing the same free childcare provision for one and two-year-olds as we have for three and four.

Businesses know the reason for inactivity are complex, but the measures we’ve proposed around reforming the childcare market, enabling more agile and flexible training provision, and helping prevent and treat long-term sickness are part of the solution.

 

Path to growth

The CBI says the Spring Budget is a chance to get the UK out of recession and that the path to growth is clear.

As well as action on childcare costs and skills, it wants to see a successor to the Super-Deduction to ensure the UK is ‘back in the game on global investment’. It says that investment incentives are being pulled away just at the time businesses need them most.

As corporation tax rises six points in April, introducing full expensing for capital investment will make a big difference to offset the impact, according to the CBI. Failing this, it proposes introducing a three-year roadmap to full expensing, starting with a 50% investment allowance from this April, for capital spending which will send a clear signal to both domestic and international investors.  

The CBI also says the government should help firms get ready for next winter and regain lost ground on green growth by supercharging UK competitiveness in green markets.

 

Spring Budget

The Chancellor will deliver the Spring Budget, alongside a forecast from the independent Office for Budget Responsibility (OBR), on 15 March. 

Mercia’s tax experts will be watching and will provide detailed analysis of the day’s announcements. Keep your clients up to date with our range of digital and printed products.