Lord Newby (LD)
My Lords, it is a great pleasure, even at this time of night, to introduce the Childcare Payments Bill, which introduces a new tax-free childcare scheme. The new scheme was announced by the Chancellor of the Exchequer at the 2013 Budget. Once it is in place, the Government will meet 20% of eligible working families’ childcare costs up to an annual maximum of £2,000 for each child. That is the equivalent of basic rate tax relief on childcare costs up to £10,000.
I am sure noble Lords will need no persuading that there is a compelling argument for the Government to support working parents with their childcare costs. Survey data from the Department for Education suggest that more than half of mothers currently not in paid work would prefer to be in paid employment if they could arrange reliable, convenient, affordable and good quality childcare. Likewise, around one-quarter of employed mothers say that they would increase their working hours if they could arrange appropriate childcare.
Sadly, it is the case that many parents find themselves in the difficult position of having to make a stark choice between work and family—between, on the one hand, staying at home to care for their children and, on the other, paying for the childcare to allow them to go to work. It is clear that many more parents than are currently able would like to work, provided they can find a successful way to combine work and family life. These are precisely the families that this Bill is designed to help.
To qualify for government support, a parent will simply need to register with HMRC to open an online childcare account. When they pay money into it, the Government will add a further top-up payment. So for every payment of £8 made by a parent, they will receive £2 from the Government, up to a maximum of £500 every quarter. The scheme will provide support for those with children up to the age of 12. This limit will be set out in regulations that the House will have the opportunity to debate after the Bill has received Royal Assent. However, the Government recognise that for parents of disabled children childcare costs can remain high well beyond their 12th birthday. Such parents face a range of additional challenges if they are to have a fulfilling working life alongside the need to care for their child. In recognition of this, the scheme will provide them with support until the September following their child’s 16th birthday.
Noble Lords will be aware that a scheme is already in place under which some parents can receive financial help from the Government with their childcare costs. This is delivered by means of an income tax exemption and a disregard of national insurance contributions provided by the employer-supported childcare scheme. The tax and NICs reliefs will gradually be withdrawn as the new scheme becomes available. The existing scheme has a number of serious shortcomings that mean it is far less effective than it needs to be. For one thing, as its name implies, employer-supported childcare is not available to those who are self-employed. Because it generally works through salary sacrifice arrangements, it is not available to those whose earnings are at or slightly above the level of the national minimum wage.
A further drawback is that whether a parent can receive support from employer-supported childcare is crucially dependent on whether their employer chooses to offer it. The fact is that less than 5% of employers currently offer the scheme. This means that over half of employees are simply unable to access it. Lastly, employer-supported childcare fails to pay any regard to the number of children that parents actually have. It can provide a higher level of support to a family with two adults and one child than it does to a lone parent with multiple children. That is obviously far from satisfactory.
The new scheme has none of the drawbacks of employer-supported childcare. As parents will engage directly with HMRC to open their accounts rather than via their employer, it will be available to anyone who works, provided they meet the relevant eligibility criteria. While around 500,000 parents are currently in receipt of employer-supported childcare, we estimate that up to 1.8 million families will be eligible for support under the new scheme. For the first time, self-employed parents will be able to receive support from the Government with their childcare costs. The Government estimate that around 200,000 self-employed people will directly benefit from the scheme. The level of support available to a parent under the scheme will be determined by the number of children that they have, rather than the number of parents whose employers operate the employer-supported childcare scheme. This will bring an end to the manifest unfairness of the current scheme, particularly to lone-parent families that have more than one child.
As well as being available to far more families than employer-supported childcare, the new scheme will give parents the flexibility that they need to allow them to return to work. They will be able to pay money into their childcare accounts when they want to and spend the top-up payments when they need to, such as over school summer holidays. In addition, other family members, friends and employers will also be able to pay money into the accounts if that is what they wish to do. Parents will also be able to withdraw money from their childcare accounts if they need to do so, with their contributions returned to them, and government top-ups returned to the Government. The scheme has been designed to be as simple and straightforward as possible for parents to operate and to minimise the need for them to engage with HMRC. That is fundamental to the scheme’s design.
A primary means of achieving this is the fact that parents will not be required to report changes in their personal circumstances in real time, as is the case for tax credits. Instead, the scheme will be based on quarterly entitlement periods, such that once a parent is eligible, they will continue to be entitled to support for that quarter, regardless of any changes in circumstances they might experience. This flexibility will be particularly valuable to those on lower incomes, who might meet the criteria for receiving government support for their childcare costs through either tax credits or universal credit. Parents will not, of course, be able to claim double support and will instead need to make a choice of which type of support best suits them. With that in view, alongside wider guidance and information, HMRC will provide an easy-to-use online tool for parents choosing between other means of government support and the new tax-free childcare scheme. Parents will be able to enter details about their personal circumstances quickly to see what support is right for them.
I should add that this scheme should not be considered in isolation but should instead be seen as one part of a far broader range of initiatives aimed at helping those with children that this Government have introduced since 2010. The main ones are: first, additional funding for 15 hours a week of free childcare for all three and four year-olds, saving families an additional £380 a year per child; secondly, additional funding for 15 hours a week of free childcare for all disadvantaged two year-olds, saving those families more than £2,400 a year per child; thirdly, an increase in the child tax credit to £3,295 a year, £450 more a year than at the election; fourthly, an increase, from 2016, in the childcare element of universal credit, from 70% to 85% of total childcare costs, to improve work incentives and ensure that it is worthwhile to work up to full-time hours for low and middle-income parents; and finally, the introduction of shared parental leave and statutory shared parental pay for those with children born after 5 April 2015.
I realise that there are concerns that the effect of these demand-side initiatives might simply be to drive up the costs of childcare. That is why the Government have also taken significant steps to increase the supply of high-quality childcare. The most notable of these are the introduction of childminder agencies to reduce bureaucracy for childcare providers and increase the choices for parents; consulting on proposals to relax planning rules to allow nurseries to expand more easily; and reforming the role of local authorities to improve access to government funding and encourage new entrants to the market.
Noble Lords will also be aware that in his 2014 Autumn Statement last week the Chancellor announced a further government initiative aimed at encouraging the supply of childcare. A further £2 million will be set aside to double the funding available for 2015-16 from the childcare business grant to support the creation of new childcare places. This grant has existed for some 20 months and provides funds to newly registered childcare businesses. To date, it has supported around 4,500 new childminders, who between them have the capacity to offer up to 32,000 new childcare places. I am sure that all noble Lords will welcome this expansion.
The Bill will deliver much needed support for working families. It marks a clear and significant improvement on the existing mechanism for providing such support and is a further tangible demonstration of this Government’s support for parents and their children. I commend it to the House. I beg to move.
Lord Newby
My Lords, I thank all noble Lords who have stayed to contribute to this debate, which was as thoughtful as one would expect in your Lordships’ House. I will attempt to answer some of the specific points that have been raised.
I absolutely agree with the noble Earl, Lord Listowel, about the importance of early years education. It is probably not as widely understood as it should be that very early high-quality educational intervention is an investment, in that it raises the starting point from which everything else flows through a child’s education and, indeed, life. I absolutely agree with him about the need to have good-quality provision at every stage. I take his point about low pay in early years. We hope, for example, that in dealing with those two issues we will see an increase in the qualifications of staff in the early years—in particular, that more staff will be qualified to graduate level. One objective of the new early years pupil premium, which will cost £50 million next year, is to provide funds to improve the quality of early education to disadvantaged children, including improving qualifications.
The noble Earl asked specifically about disabled children. We have recognised already that disabled children are in a separate category by running on the scheme from the age of 12 to 17. I accept the point that some disabled children require higher costs throughout their childhood, including their teenage years. As he mentioned, the Exchequer Secretary has made a commitment to look at increasing the maximum amount that the families of disabled children can pay into a childcare account and thus increase the amount of government top-up that they can receive. I know that that does not go as far as he would like because he would like the proportion of tax benefit to increase. The challenge here, as with many other potential changes to the scheme, is one of cost. My colleague in another place, the Exchequer Secretary, is looking at that and, hopefully, in respect of raising the potential amount of government support through matched payments as per the current scheme, we might see some progress.
As regards disabled children, the noble Earl asked whether we can learn from the local government scheme. In terms of what is already happening, he will be aware of recent reforms to special educational needs provision. I agree that it will be important to learn from the experience of those on the ground. Without looking at my diary, I am not sure what I will be doing on 9 January. Last Friday, I visited a nursery in Haggesdon but I am sure that the noble Lord will think that that does not really count. I am very happy to look at whether the suggestion would be possible.
The noble Earl and other noble Lords asked about the problem of this scheme working alongside tax credits and universal credit, and how parents will know whether they are eligible for working tax credit and whether they are best to opt for this scheme or for that scheme. That is why we are doing a number of things to help them. The online tool to which we referred, which will be a ready reckoner, is expected to be the main easy way for parents to access very good information.
Sometimes a bit of an assumption is made—far be it from me to suggest this to the noble Lord, Lord Davies—that parents from poorer backgrounds are incapable of managing relatively simple technology. I do not believe that that is the case. It is so common now for everybody of all income levels to use the internet, whether it is for shopping or whatever, that it is not unreasonable to think that a very clear online tool is an appropriate mechanism as the centrepiece of what we are trying to do. Certainly, my children are happier almost to deal with the consumption of words online than they are with the consumption of words on paper. They look to online sources of information in the first place.
The right reverend Prelate asked a number of detailed questions about the way in which the scheme works, how it will interact with universal credit and whether the Government will consider a number of changes to the way we are planning to administer it. In particular, he asked whether the Government might consider allowing help with childcare costs through universal credit to be paid via a childcare account. We have a number of issues with that suggestion. The new scheme is fundamentally different from schemes such as universal credit, with support paid for different purposes in different ways to meet different circumstances. Universal credit is paid as a monthly lump sum to cover a range of costs, including childcare costs. It is not ring-fenced and is intended to support households to focus on budgeting on a monthly income. The objective is to ease the transition into starting or going back to paid work, which is why it is paid in a similar way to a monthly salary. If the Government move to the suggestion made by the right reverend Prelate, we would end up with a much more complicated scheme than we have at the moment. I think universal credit and the benefits system is complicated enough without running any risk of making it more complicated.
The right reverend Prelate asked about the fact that support for childcare in universal credit would be on the basis of payment of childcare made rather than childcare costs incurred, and that this will mean that people will have to find money up front to meet these costs. I can see that this is considered potentially to be an issue, but for parents moving into work we have the flexible support fund that can be used to pay for childcare to enable a claimant to start work. Budgeting advances that will be available to families under universal credit are also designed to help claimants pay for intermittent household expenses, of which this will be one. The money will then be reclaimed over a period. The principle under universal credit that you pay for the childcare costs that you have actually incurred is a very sensible way of approaching matters but having this fund will ease that transition, which is very important.
My noble friend Lady Eaton raised a number of wide issues which we could spend all night debating. For example, she and other noble Lords raised some of the real conundrums in this area about how you spend a limited amount of money to the best effect. I am not sure that any Government are always 100% successful in that, but we are taking funding for a scheme that benefits relatively few people—certainly not the people we necessarily want to benefit, as it is largely by chance the way your employer decides to operate the scheme—and moving it to a scheme that treats everybody in work with children fairly. I think that is a very big gain from this scheme over what we had before. It obviously does not deal with many of the other wider issues she raised, including the extremely interesting debate about the importance of marriage in society and the extent to which that might be reflected in the tax system. I suspect that the political parties will be thinking what more they want to say on that issue as they draw up their manifestos over the next few weeks and months.
One of the key purposes of what the Government have been doing in respect of childcare policy and other policies is to encourage more people, particularly women who wish to do so, to get back into work. Department for Education survey data suggest that more than half of mothers not in paid work would prefer to be in paid employment if they could arrange reliable, convenient, affordable and high-quality childcare. That is one of the attractions of what we are doing with universal credit and, to a certain extent, what we are doing in this scheme.
The relevance of at least one family member—but very often mothers—being in work is the example that that sets to children in terms of how they see their lives developing. One of the statistics in terms of the labour market of which I am most proud is that there are now 390,000 fewer children living in workless households than in 2010. That is 390,000 children who see at least one of their parents going out to work and earning a wage. They see the benefit of that as opposed to many children in the past who saw their parents not going out to work and, sadly, often saw that as being the way that they might spend their own lives. Some of the broader issues that my noble friend Lady Eaton raised may be for another night, or, even better, another day, but I am sure that we will return to them.
The noble Lord, Lord Davies, raised a number of detailed questions, some of which I think I have covered in answers to other noble Lords. He suggested that the qualifying age for disabled children should be raised from 17 to 18. Having an age limit of 17 for disabled children is in line with the employer-supported childcare scheme and the childcare element of both tax credits and universal credits. It would not be right to increase the age limit in the new scheme while leaving it at 17 in other schemes. It would be inconsistent and confusing for parents. To increase the age up to which the child would be entitled to support across all these schemes would carry a material Exchequer cost, which is something that we have to be concerned about.
The noble Lord raised concern about Atos acting as a contractor to NS&I in respect of this scheme and whether that might be problematical. I believe that Atos acts as a contractor to NS&I in respect of premium bonds and I do not think that anyone is suggesting that there are any problems in the way that they are currently administered.
The noble Lord, Lord Davies, made a number of points on issues which would involve greater expenditure on childcare. Again, this Government feel that they have an extremely strong record in this area and the constituent parts of the Government will put forward proposals for childcare in the next Parliament, as will the noble Lord’s party. I am sure that the noble Earl, Lord Listowel, will be pleased that the parties are competing to see which can be the more generous in this area.
This is a sensible measure which will benefit many families and will use the resource much more fairly than is currently the case. I am extremely pleased that noble Lords who have spoken agree with the Government that this is a sensible and positive move forward to support families and their children.