Tax Relief for Parents
Tax breaks are to be offered to working parents with children under the age of five. The purpose of the coalition’s new proposal is to help reduce the cost of childcare for families and is expected to be worth up to £2000 per year, per child.
Britain has some of the highest childcare costs in the world. A typical mother with one child and a full-time job would use up to four month’s salary in covering the costs of childcare for a year. Families with two or more children, because of the cost of nurseries or other childcare, are often better off when one parent doesn’t work at all.
To mark the halfway point in their coalition government, David Cameron and Nick Clegg have vowed to make a reform of childcare a key priority for the next two and a half years. In their foreword to the new government deal, Mr. Clegg and Mr. Cameron write, ‘We will support working families with their childcare costs.’
It is not yet clear how the proposal will operate but it is expected that existing workplace childcare vouchers, that give some parents a monthly sum tax-free, will be scrapped and an alternative scheme put in place. One suggestion being discussed in Whitehall is for a third of the cost of childcare to be made tax deductible. Other ideas are for a simpler, flat-rate voucher system to be put in place. The latter approach could be seen as a fairer option, since it would be worth the same for every family regardless of income.
It has been reported that the scheme could be implemented before the next election, since it is seen as a key vote winner.
Whichever model is chosen, the financial benefits the proposal will provide could counteract the loss of child benefit for wealthier families, a change that comes into effect this month. However this will only be the case in families where both parents work.