Childcare Vouchers

John Glen Excerpts

Monday 15th January 2018 Westminster Hall

[Alex Cunningham (Stockton North) (Lab)]

It is a pleasure to speak under your chairmanship, Mr Bailey. I congratulate the hon. Member for Belfast South (Emma Little Pengelly) on her wide-ranging and thorough speech, and my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) on her opening speech, which clearly demonstrated that she understands the issues and has tremendous knowledge in this area. I wish the new Minister, who I think is the third Children’s Minister we have had—I suspect he is the Children’s Minister.

[The Economic Secretary to the Treasury (John Glen)]

indicated dissent.

[Alex Cunningham]

He is not the Children’s Minister. I understand that we do have a new Children’s Minister, but I am sure that the Treasury Minister wants to understand childcare as much as anyone else does. Believe me, he has some way to go, being a member of the Tory Government.

Childcare delivered fairly for all children plays a major role in ensuring that no individual fails to get the chance of having a better start in life, even before they get into the school classroom. It also helps parents to realise their potential and make the most of their lives. I served as the cabinet member for children and young people at Stockton Council, and I well remember speaking with head teachers after Labour’s groundbreaking Sure Start centres were developed and nursery provision was expanded beyond all recognition. They told me how children were far better equipped and ready for school than the groups that came before them. Their social skills were better, they were used to structure, they were already participating in activities and they had a level of confidence that made them ready to learn. That was all great stuff. The hon. Member for Belfast South spoke about how much more possible educational attainment is for children who have had proper childcare and proper nursery provision. We must not lose sight of that, as it drives results. We see those results in our primary schools and secondary schools today. The children coming out of secondary schools now were among the first to benefit from the Sure Start programme.

I always acknowledge that the coalition Government and the last Conservative Government helped build on Labour’s legacy—children continue to benefit even more—but it is crucial that that success is not undermined by the gap between the haves and the have-nots being widened. We have always had a two-tier system. Even when Governments of the past got sensible and first offered free childcare, those who could afford more and better provision gave some children an advantage. I doubt that will ever change, but surely there is no need for the current Government to make changes that will disadvantage those least likely to be able to afford top-up fees, effectively creating a two-tier system.

When discussing areas of policy relating to childcare and the education of children, it is vital that we focus not only on cost, but on outcome. We know that the early years are one of the most formative times of a person’s life and have significant influence over their development. That is why I urge the Government not to treat childcare as something that can be cut back. By cutting back or reducing access, we put a stop sign in front of the poorest children in our country. From what I see, the changes proposed around the voucher scheme will effectively do just that: reduce provision.

I have looked at the childcare voucher scheme, as other Members have—they have already talked about it—and I compared it with the tax-free childcare system that parents will have no choice but to use if they sign up after April. From my observations, tax-free childcare is considerably the less favourable of the two options. Existing users of childcare vouchers will be able to choose the system that benefits them most, whereas applicants after April will have no such choice. That creates a two-tier system, where some children will be disadvantaged, depending on the amount their parents can afford to pay.

The Prime Minister’s words on the steps of Downing Street 18 months ago are much quoted. She said:

“We will do everything we can to help anybody, whatever your background, to go as far as your talents will take you.”

It is a well-worn quote. I have to believe that those words applied to young children as much as to anyone else, and I just wonder if the Prime Minister knows how these particular proposals fly in the face of her pledge and affect the families she may have once described as “just about managing”. I doubt the new Education Secretary, with whom I served on the Education Select Committee and with whom I share a passion for early years’ provision, would really want to see his first few months in office marred by the creation of a system that was far from equal. Has he even had the chance to reconsider the policy ahead of today’s debate? Since we are debating childcare vouchers, I am sure many of us would tell the Prime Minister and her new Secretary of State that the new tax-free childcare service is not fit for purpose. It does not fairly replace childcare vouchers and they should think again.

There is a real opportunity for the new Secretary of State and the new Children’s Minister—it is a shame he is not here to debate with us today—to demonstrate their listening credentials and order a review of the whole policy area. Potential inequality is not just about the ability to pay; it is also very much about the status of an individual or couple. In the gig economy we are now living in, are we putting the provision for some children at risk because their parents are likely to face rapidly changing working environments? I raised that with the Minister of the day, the right hon. Member for Witham (Priti Patel), when the policy was being developed in 2014. I said:

“For many, particularly those with fluctuating incomes such as the self-employed, or those likely to have a change in circumstances later in the year, the complexity will be so great that it is likely to be impossible to provide a better off calculator that can cover many of the situations in which claimants find themselves.”—[Official Report, 17 November 2014; Vol. 588, c. 90.]

My hon. Friend the Member for Newcastle upon Tyne North, who has spoken widely today, also spoke in that debate. She said:

“It is worth remembering that some 520,000 families currently benefit from ESC vouchers. The Government’s impact assessment sets out a number of case studies where families might be better off or, indeed, worse off under the new top-up payments.”—[Official Report, 17 November 2014; Vol. 588, c. 68.]

That was three years ago, so the Government have had enough time to find answers to those problems and inequalities.

The Childcare Vouchers Providers Association highlighted that some families will actually lose money under tax-free childcare compared with vouchers. That point has been repeated several times today, but it is worth repeating: people will lose out. Does the Minister know who will lose out and who will benefit? What is he doing about those who will lose out? Are there any plans to ensure equality of opportunity and access to provision? What happens when a parent in the gig economy earns less than £120 week for a while? At what point do they lose that tax-free childcare? I do not know the answer to that; I hope the Minister does. It seems to me that the system is a wee bit messy and confused. Until there is proper understanding of the change to a complete tax-free childcare system, the Government should at least extend the deadline for childcare vouchers. Has the Minister or the new Secretary of State considered that?

I also note the difference regarding the age of a child receiving tax-free childcare. Vouchers can be used for children up until the September following their 15th birthday, but that figure drops to the September following their 11th birthday under the tax-free system. Can the Minister share with me the logic behind that decision? Are the Government suggesting that 11-year-olds can be left home alone while their parents are at work? Are they assuming that everybody has grandparents and other family members to stay with, or do they have to find the cash themselves to help pay for childcare? We cannot escape the fact that this all boils down to cash: the cash that the Government are prepared to invest in childcare and the cash that some parents will have to find if their children are to be looked after so that they can have peace of mind while they are at work.

--- Later in debate ---

[The Economic Secretary to the Treasury (John Glen)]

I am pleased to serve under your chairmanship, Mr Pritchard. I thank everyone who signed the petition and made their views heard. I understand that the petition has attracted more than 115,000 signatures, which goes to show the importance of the Government’s support for childcare costs. This is a key issue, and we have had a thorough debate. Seven Members made very full and thoughtful contributions, and I will respond to as many of their points as I can.

For many parents, being able to afford good-quality childcare is essential to working and supporting their families, so it is right that we have this debate. I am responding to the debate rather than the Minister with responsibility for childcare because tax-free childcare and childcare vouchers operate through the tax system. The Government have introduced tax-free childcare, which will benefit more than 1 million working households and mean that parents are eligible for up to £2,000 per child per year to help towards childcare costs.

[Ruth George]

Will the Minister give way?

[John Glen]

No, I want to make some progress. The hon. Lady can come in—

[Ruth George]

I have just a quick question.

[John Glen]

Let me make my introductory remarks, and then I will give way.

Let me draw Members’ attention to the three key reasons why we support the replacement of childcare vouchers with tax-free childcare. First, the Government believe that childcare vouchers are unfair. Tax-free childcare is fairer and better targeted than the voucher scheme. For example, only about 5% of employers offer vouchers, which limits their reach to about half of working parents, not to mention that self-employed parents are completely excluded from the scheme, which pays no regard to the number of children in each family and disadvantages lone-parent families.

Secondly, tax-free childcare has a broader reach. It is open to all working families with children aged under 12 that meet the earnings criteria. That ensures that families who were excluded from childcare vouchers can be brought into tax-free childcare, and benefits families with the highest childcare costs—namely, most of those with young children.

Thirdly, tax-free childcare is simpler to use—I will come to the IT issues that Members raised. Employers usually pay third-party providers to administer childcare voucher schemes. The Government do not believe that paying third-party providers is a good use of taxpayers’ money. Some £220 million has gone on such administration since the scheme began. A voucher scheme is therefore an ineffective way of delivering support to families. Under tax-free childcare, parents manage their own accounts online. The case for change is clear, as it was to the Labour party when it announced at its 2009 conference, when it was in government, that the existing system would be shut down.

I will now happily give way to the hon. Lady.

[Ruth George]

I thank the Minister for giving way. I was simply going to ask about his earlier comment that 1 million families will benefit from tax-free childcare. Is that the number who will benefit in comparison with having no support with childcare at all, or does it take into account the approximately 550,000 families who would actually be better off under vouchers than under tax-free childcare?

[John Glen]

Clearly, in any benefit system there will be those who are better off and those who are not better off, but the bottom line is that the current system prevents large numbers of parents from accessing childcare support. That is why we are making the change.

[Alex Cunningham]

I have a simple question: is the Minister content that we should have inequality in the system and that some parents should receive a greater benefit than others?

[John Glen]

I am certainly very discontent with a situation where only half of employees are able to access childcare support and no self-employed parents can access any childcare.

[Catherine McKinnell]

Will the Minister give way?

[John Glen]

I am going to make a little progress, and then—[Interruption.] Go on, I will take a third intervention, as the hon. Lady opened the debate.

[Catherine McKinnell]

I thank the Minister for giving way. He is making an argument for broadening access to support with childcare, with which no one would disagree, but he is not making a compelling case for closing down the support that hundreds of thousands of working families already access. He needs to explain that before he can convince anyone, in the Chamber or outside, that it is a good idea to shut the voucher scheme.

[John Glen]

I thank the hon. Lady for her remarks and for the way in which she introduced the debate. She must reflect on the fact that the Government are closing the scheme, but not to existing recipients. There is no question of existing recipients not being able to continue making their current arrangements. It is unrealistic to say that that is the case—we are not shutting it down to existing claimants.

Let me make some progress. As the hon. Lady said in her remarks, tax-free childcare will be rolled out by 14 February 2018, and HMRC has done extensive work to ensure that the childcare system is ready for full roll-out. The advent of tax-free childcare will bring greater benefits to British families: it is better targeted and simpler than childcare vouchers. It is therefore right that we continue with the reform as planned, to the benefit of millions of households. The Government recognise that working parents have to make difficult financial decisions, and we are committed to supporting families to ensure that the cost of childcare does not deter them from working, or working more, if they wish to.

The hon. Member for Belfast South (Emma Little Pengelly) made a thoughtful point about female employment and the gender pay gap. The female employment rate is at a joint-record high of 70.8%. Since 2010, the number of women in work has increased by 1.4 million. I acknowledge that there is more work to be done, but the gender pay gap for full-time employment is at a record low. While I am not complacent—three days into my job at the Treasury, I am already focused on pay equality—we must acknowledge that some progress has been made.

Beyond introducing tax-free childcare, we have demonstrated our commitment to supporting families through multiple measures, to ease the burden that bit more. That is why the Government will be spending more money on childcare support than ever before. By 2020, we will be spending about £6 billion to help parents with the cost of childcare. That includes doubling the free childcare hours for working parents of three and four-year-olds from 15 to 30 hours a week, saving families around £5,000 per year per child. That is making a real difference to the lives of families across the country.

We are supporting working families on the lowest incomes who receive universal credit. We have increased the amount that working parents can get towards their childcare costs through universal credit from 70% to 85%. As wages increase, parents can use the online calculator to decide which offer best meets their needs: staying on universal credit or moving to tax-free childcare.

The Government have been gradually introducing tax-free childcare to replace childcare vouchers since April 2017 and, as I have said, tax-free childcare has a greater reach than childcare vouchers. Today, we announced that the offer is now open to families whose youngest child is under nine, and on 14 February it will open to all families with children aged under 12 who meet the earnings criteria. Each parent in the household must earn the equivalent of 16 hours at minimum wage a week—about £120 a week—and each parent must earn less than £100,000 per annum. Those criteria will ensure that the majority of working households will benefit, and it means that those working parents who are excluded from childcare vouchers because they earn at or just above the minimum wage will be able to access tax-free childcare.

Because tax-free childcare does not require any input from an employer, many self-employed parents will be able to get help with childcare costs for the very first time. Tax-free childcare is also a simpler system for parents to navigate. Parents open an online account and manage their deposits and childcare payments through it themselves. The system will also be easier and simpler for childcare providers to manage as they will no longer have to deal with multiple voucher providers. Tax-free childcare also offers more generous support for parents of disabled children, who can get up to £4,000 a year and remain eligible for tax-free childcare until the age of 17.

I will have to look into the assessments and write to the hon. Member for Birmingham, Selly Oak (Steve McCabe). At this point, I do not know whether that data exists. However, once tax-free childcare is open to all eligible parents and fully established, we expect it to be worth around £1,100 a year per household. That additional support is essential for many parents to return to work. It is clear that the replacement of childcare vouchers with tax-free childcare will bring huge benefits to parents.

I want to address points made by a number of hon. Members on delivery. The childcare service is a groundbreaking new digital service and, as of today, more than 300,000 parents have opened an online account. The hon. Members for East Lothian (Martin Whitfield) and for Newcastle upon Tyne North (Catherine McKinnell) referred to internet access, and the hon. Gentleman referred to banking issues, which we discussed on Thursday. The childcare service helpline can be called when online access cannot be secured.

We have seen a reduction in errors on screen down to 2%—it was 5% to 6% last summer. Enormous progress has therefore been made. The hon. Member for Oxford East (Anneliese Dodds) asked about an iron-clad guarantee, which is a little unrealistic given what has happened to Government IT projects for all parties over all generations since we have had IT. However, HMRC is working closely in partnership with National Savings and Investments, and with Atos as a delivery partner. Significant progress is being made to reduce those error screens significantly, to give a greater level of confidence on the roll-out of the new scheme.

While the vast majority of parents have used the service without difficulties, I acknowledge that some have experienced them. I can only apologise to those individuals. HMRC has apologised to those parents and has already made significant improvements to the childcare service, as I just set out. Overall, parents are receiving eligibility results more quickly, with the vast majority receiving a response within five working days, if not immediately, and fewer parents are experiencing technical difficulties.

HMRC will continue to implement technical updates to improve further the experience for all customers. It has arrangements in place to ensure that no parents miss out as a result of technical issues, and it is providing payments directly to parents in lieu of the Government top-up. Where individuals have missed out, compensation is available for those sums missed out on due to those technical issues. As I mentioned, a dedicated helpline is provided.

I want to address the reach of tax-free childcare. The scheme is designed to be responsive to parents’ needs. All parents who would have been eligible for childcare vouchers will be eligible for tax-free childcare provided that they have a child aged under 12 and that they and their partner, if they have one, earn around £120 a week. The generous upper earnings limit of £100,000 per parent means that the vast majority of working parents will be able to claim help with childcare costs.

However, the Government recognise that a small number of parents who were eligible for vouchers will not be eligible for tax-free childcare. Most of those parents will no longer be eligible as they are couples with only one partner in work, or where one is earning over £100,000 a year. Government spending has to be prioritised where it will have the biggest impact. We have struck a balance between universal childcare offers and those targeted to support families who need help the most with the costs of childcare. Tax-free childcare is better targeted than vouchers, where support is dependent on who a parent works for rather than the needs of their household.

[Alex Cunningham]

I sense that the Minister is getting towards the end of his speech. People in the gig economy see tremendous fluctuations in their income and might not meet the £120-a-week threshold at any one time. What will the Government do about such people? Will they just drop out?

[John Glen]

The hon. Gentleman makes a characteristically sensible point, and I am happy to look into the matter and write to him. I do not have a detailed answer that I am happy to give him now.

[Emma Little Pengelly]

Although I welcome the fact that female participation in the workforce is at record high levels of about 70%, male participation in the same age cohort is about 79% to 80%—a significant gap. The Minister has outlined the targeting of measures at those most in need, but has the Treasury given consideration to the productivity gap between males and females? Research has indicated that a significant percentage of women, when asked about participation, give caring for children in the home as the primary reason, but there is a significant economic impact. That policy agenda should also be targeted by a childcare policy.

[John Glen]

As a former policy person, I acknowledge the detail of the hon. Lady’s analysis, and that there is more work to be done. I shall take that back to the Treasury as we try to address all dimensions of the productivity challenge.

The Government think it is right that we replace childcare vouchers with tax-free childcare from April 2018. However, I would like to reassure any parent who is currently receiving vouchers but is not eligible for tax-free childcare that there will be no automatic withdrawal of the voucher scheme. If they currently receive vouchers and their employer continues to provide them, they can continue to receive vouchers as long as they stay with that employer.

[Steve McCabe]

I acknowledge what the Minister says, but what will he do about parents who may change their employer? Presumably those parents will be discriminated against.

[John Glen]

I think they will be eligible for the tax-free childcare scheme.

Again, I thank all those who signed the petition, and all hon. Members who spoke this afternoon. As I have set out, tax-free childcare will help more households, and is better targeted and simpler, than childcare vouchers. HMRC has done extensive work to ensure that the childcare system is ready for full roll-out. It is therefore right that we continue with the reform as planned, to the benefit of millions of households around the country.