The Prime Minister says that this tax relief for parents is badly targeted and wants to divert the money to fund nursery places for two-year-olds from disadvantaged backgrounds.
More than 75,000 people have signed a petition on the Downing Street website calling for a rethink on the proposed scrapping of the popular scheme. Childcare vouchers, otherwise known as the employer supported childcare scheme, were introduced in 2005. The scheme involves parents sacrificing up to £243 of their salary per month before tax and national insurance deductions, and in return they receive electronic vouchers to be used to pay for Ofsted-registered childcare. Around 340,000 families in the UK are signed up for the scheme.
The scheme helps parents by saving them money in childcare costs. Many parents rely on the vouchers to enable them to work, and the scheme can save them as much as £1,196 a year. The tax break is equivalent to a 31% saving on up to £243 for basic rate taxpayers a month or 51% for those on the higher rate. Because both parents can sign up for the scheme if their employers offer it, that saving can be doubled per household. The scheme helps employers as it provides an added incentive for people to work for them, and employers also do not have to pay their national insurance contributions on the money.
Gordon Brown intends to phase out tax relief on childcare vouchers over the next six years. No new entrants to the scheme would be accepted after 2011, and the voucher scheme would then be stopped for all participants in 2015. The Prime Minister said that the says the money saved will be diverted into funding 10 hours a week of free childcare for two-year-olds from less privileged backgrounds.
