Written evidence prepared by the Childcare Voucher Providers Association (CVPA) for the Treasury Committee’s inquiry into Childcare

January 2018

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1.       Introduction

1. The Childcare Voucher Providers Association (CVPA)[1] is the industry association established to represent the views of Childcare Voucher provider companies. CVPA members act as the self-regulators of the Childcare Voucher industry, via a mandatory code of practice, providing a benchmark in terms of quality of service employers and parents can and should expect.

2. Our submission is primarily related to the provision of childcare support via the Childcare Vouchers scheme (also known as Employer Supported Childcare). Childcare Vouchers operate as a salary sacrifice benefit, requiring minimal upkeep whilst offering families flexibility. The amount that parents can save using the scheme is capped at each tax band, with basic rate taxpayers able to save the most. Each parent can salary sacrifice, so savings can be doubled if both parents are eligible. 

3. Childcare Vouchers are offered by the entire public sector, every large organisation and most medium-sized companies. Well over 20 million of the 31 million employees in the UK work for employers that offer Childcare Vouchers, with over 780,000 parents currently using Childcare Vouchers, and millions of parents having benefitted from them since their introduction in 2005.

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2.       Executive summary

1. The Government has decided to close Childcare Vouchers to new entrants from April 2018. This will mean that the only option for childcare support, other than Tax Credits / Universal Credit, would be Tax-Free Childcare (TFC), which would leave many parents worse off than if they were using Childcare Vouchers. According to the charity Employers for Childcare, approximately 66 per cent of the parents they speak to would be better off using one, or a combination of, Childcare Vouchers, Tax Credits or Universal Credit, rather than just TFC. [2]

2. The Childcare Vouchers scheme will be grandfathered, meaning existing users would permanently lose access if they were to ever change employer or find themselves unemployed for a period of time. Moreover, any parent not in receipt of Childcare Vouchers by 5th April 2018 will not be able to join it thereafter. The CVPA’s principal concern is that, despite having a unique opportunity to embed a comprehensive childcare support system, the Government’s current plans to close Childcare Vouchers would result in a regressive childcare support system.

3. TFC provides more support to those that spend the most on childcare. This tends to favour families who live in the more affluent regions of the UK. These families must be able to spend £8,000 of their own money on childcare each year to get the headline £2,000 of support. We appreciate the Government’s desire to support these families, as we appreciate the cost of childcare can be prohibitive even in relatively affluent areas. However, the average family is likely to receive less support under TFC than they would under Childcare Vouchers.

4. Childcare Vouchers is a progressive regime, based on earnings rather than expenditure, so those that earn the least can claim the most support (figure 1). Childcare Vouchers, unlike TFC, can be used alongside Tax Credits and Universal Credit, meaning many of the lowest paid in society will find themselves worse off under TFC than they would be using Childcare Vouchers. To introduce TFC and remove Childcare Vouchers would establish a regime that largely benefits those that can afford to spend more, while taking away from those that earn less.

Figure 1: Childcare Voucher savings by Employee Tax and National Insurance Bands

5. Many employers need to account for this on their February payrolls, with the rest accounting for it in March, and so informing all those involved of when the necessary legislation will be laid is paramount. The lack of clarity from the Government is causing significant problems and anxieties for employers and parents respectively.

6. The CVPA is calling on the Government to keep Childcare Vouchers open alongside TFC as part of a comprehensive package of support for parents, allowing them to make an informed choice about what form of childcare support best suits their individual family needs.

7. Childcare Vouchers have a similar administrative cost to TFC. While some employers administer the Childcare Voucher scheme in-house, many chose to use specialist voucher providers for simplicity and efficiency. The voucher provider is chosen from a competitive market where any fees charged are reflective of the costs of the service provided and are not in any way related to the amount of tax relief the government offers to employers. The total administrative charge by voucher providers is about 3% of the voucher value. It varies from as little as 0.1% to up to 5% depending on the size of the company and efficiencies of scale. Given the Government spends about £800m on vouchers each year, this would be about £24m per year if all employers decided to use a voucher provider.

8. This compares favourably to TFC that will cost £42m a year to administer from 2018-19. The Government chose Atos to administer Tax Free Childcare in a closed doors deal without any open tender to ensure value for money to taxpayers through open competition. This might explain some of the higher cost of TFC and numerous quality issues with the Childcare Choices website.

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3.       Overview of Childcare Vouchers

1. The Childcare Voucher scheme has supported millions of parents with in excess of 780,000 parents currently using the scheme. The Government intends to close the Childcare Voucher scheme to new entrants from April 2018, preventing any existing users from accessing the scheme if they were to lose their job or change jobs for any reason. This also applies to medical staff on rotation that must move between NHS Trusts, as each Trust is a separate employer. In some cases, employers have already stopped offering Childcare Vouchers in light of the roll-out of TFC. For example, Conservative-led East Riding of Yorkshire Council, has terminated the scheme as of 1 January 2018.

2. The charity, Employers for Childcare, estimate that approximately 66 per cent of the parents that approach them for advice will be better off using Childcare Vouchers, Tax Credits or Universal Credit.[3] Furthermore, calculations have shown that those in lower paid areas and those on lower wages are more likely to lose out from adopting TFC and losing access to Childcare Vouchers. The Government’s impact assessment for TFC mentions 1 million families will gain from TFC. According to the ONS[4], there are around 8 million families with dependent children in the UK, howeveroweef the Government has not yet stated how the other 7 million will be impacted.

3. As greater scrutiny has been applied to TFC, it has become increasingly difficult to see how this can be a viable replacement to Childcare Vouchers. Those that are worst off, and perhaps most in need of support, are most likely to lose out.

4. Financial support helps but, alone, is not enough to support ordinary working-parent households. Employers that have supportive practices and flexibility for parental responsibilities play an essential role in enabling parents to continue to work. Many charities, such as Working Families, have stressed employer involvement as a critical issue.

5. Childcare Vouchers are often the vehicle that facilitates engagement between employers and employees on the pressures of combining childcare and work. It is off the back of this that many workplace practices have been formed – such as flexible hours, opportunities to work from home, and onsite crèches. These allow parents to continue to work productively, whilst also fostering good employer-employee relationships.

6. The impact of Childcare Vouchers being administered through employers is huge:

a)      Well over 20 million[5] of the 31 million UK employees have employers that offer Childcare Vouchers.

b)      Every large employer, public sector organisation, Government department and the majority of medium-sized companies offer access to Childcare Vouchers.

c)       Hundreds of small and medium-sized companies register to be able to offer Childcare Voucher schemes every month.

d)      Over 780,000 employees are currently supported by Childcare Vouchers and it has helped millions to date.

7. Given the benefits of the Childcare Voucher scheme, the CVPA, along with the 116,000 people that have signed the e-petition to keep Childcare Vouchers open[6], are calling for the Government to keep Childcare Vouchers open alongside TFC beyond April 2018. By maintaining access to both schemes in parallel, parents will be able to choose the scheme that best supports their family’s needs.

4.       Concerns about Tax-Free Childcare (TFC)

4a. Reverse redistribution

8. The support from Childcare Vouchers is calculated on earnings and is designed so that those on lower salaries gain the most support. On the contrary, TFC is based on expenditure, with those able to spend the most receiving the most support.

9. This means that general taxation collected from the entire UK will be funnelled towards the wealthier parts of the country (London and the South East as shown in figure 2). Based on Department for Education data, the average family in London will receive three times as much support as those in the North East – £905 in London against £312 in the North East. This is despite the average income in the North East being considerably lower than in London. This is completely counter to the Government’s general use of taxation for progressive redistribution purposes.

Figure 2: Average expected support received under TFC per annum by region

4b. IT failures

10. Since its inception, there have been several concerns regarding the functionality and accuracy of the Childcare Choices portal used to access TFC, as well as 30 hours free childcare. This includes the release of sensitive personal information and system crashes. The Government has so far refused to share any evidence of contingency planning. Other issues experienced during the roll-out include:

1. Parents being unable to sign up to TFC;
2. Parents being unable to access funds in their online account;
3. Parents having to be offered financial compensation at a direct cost to the exchequer; and
4. Parents using Childcare Vouchers having been incorrectly prevented by the Childcare Choices website from accessing 30 hours free childcare.

11. The failures that caused huge problems to parents when applying for 30 hours free childcare have also affected TFC registration. These failures have not abated and the Financial Secretary to the Treasury, Mel Stride, announced on 15 November 2017 that there had been further delays to the scheme[7]. As a result, families with older children still can’t access TFC. Clearly, this is unacceptable as it is preventing parents from accessing the childcare that they depend upon, as well as threatening a person’s ability to gain access to Childcare Vouchers prior to its closure.

12. These issues are being caused with only 30,000 accounts having received a payment (as of 27 November 2017). There is now a real risk that thousands of parents will have no access to any form of childcare support come April 2018, either due to further delays or because of the system failing yet again with an influx of parents seeking to sign up if Childcare Vouchers closes. With the risks this creates, it seems prudent to, at the very least, keep Childcare Vouchers open for a period of co-running until the basic infrastructure underpinning TFC is proven to be sufficiently robust.

4c. Cutting off support at the age of 11

13. TFC support for non-disabled children stops at just 11 while Childcare Vouchers provide support up to age 15. There is no specified legal age to leave a child alone in the UK and many parents still require childcare for older children. This is particularly useful for parents with older children that gain from the enrichment of afterschool and school holiday activities. Childcare Vouchers extends this support to children up to the age of 15.

14. Similarly, as explained in the Westminster Hall Debate on the E-petition to keep Childcare Vouchers open beyond 2018 by Anneliese Dodds MP[8], although TFC has been fully rolled out for disabled children, there has been a very limited uptake thus far, suggesting that Childcare Vouchers are the preferred option. This is further supported by a written parliamentary question tabled by Tracy Brabin MP[9] which says that there are currently only 1,187 live TFC accounts for disabled children.

4d. Confusion for parents and employers

15. There has been a distinct lack of guidance for employers making it increasingly difficult for them to adapt their practices to ensure that they can continue to support their employees in line with Government legislation. In particular, because no legislation has been laid to close Childcare Vouchers, there is still confusion as to how employers should account for salary sacrifice arrangements. This is particularly pressing as many employers need to make their April payroll decisions in February and many employers are being given contradictory advice on the matter about when a parent needs to have signed up to Childcare Vouchers. There is also frustration around the proposed Employer Toolkit’s publication date, and we ask that the Government publishes this as soon as possible to avoid further complications and confusion.

16. Furthermore, many parents have been given incorrect advice from HMRC. For example, parents have been told that they must leave the Childcare Vouchers scheme if they are to access 30 hours free childcare (see example letter and screen print in appendix 2 and 3). This is not correct and the issue is further compounded by the fact that parents who have left the Childcare Voucher scheme because of this incorrect advice are prevented by the Government from re-joining. HMRC has been unable to say when this issue will be rectified, but the HMRC technical team had originally said that this would be within 20 days. They have now said that they cannot confirm that this will be rectified before Easter.

17. The Government has deliberately not promoted the scheme because it has feared the IT system would be unable to cope with demand. On 15th November 2017, the Financial Secretary to the Treasury, Mel Stride MP, stated that, now the IT service had been improved, they would undertake more activity to raise awareness of the scheme[10]. At the same time, hundreds of small and medium-sized companies are registering to offer Childcare Vouchers each month. This implies that the low usage is not entirely because of a lack of awareness, but because parents and employers are choosing not to use TFC. It doesn’t seem right to force parents to use TFC against their wishes when it is still Government policy to give parents continued access to Childcare Vouchers.

4e. Effectiveness for the self-employed

18. The Government has so far been unclear on the number of self-employed parents that have signed up to TFC. Self-employed people who are not operating via a registered company are unable to access Childcare Vouchers. The Government has since stated this as one of the reasons for implementing TFC and closing Childcare Vouchers.

19. The Government has not been forthcoming about the proportion of self-employed parents registering for TFC. Despite several parliamentary questions asking this question, it has so far conflated these figures, only stating that “around 10 per cent of successful applicants for tax-free childcare are self-employed or have a partner who is self-employed”. This is important because those that have a self-employed partner, but are employed themselves are still eligible for Childcare Vouchers, regardless of the hours worked by the self-employed partner.

20. These families, however, would receive no support under TFC if either parent was earning less than the equivalent of 16 hours per week at the National Living or Minimum Wage. This is a situation that many parents could find themselves in, for example, a parent starting up a business once their child enters childcare or a parent simply struggling to generate work during a downturn in business.

21. Furthermore, it is only because of a deliberate Government decision that the self-employed are unable to access Childcare Vouchers. Before the introduction of TFC, the Government was asked to allow self-employed people to access Childcare Vouchers but chose not to.

22. The Department for Education’s (DfE) Childcare and Early Years Survey of Parents: 2017[11] has produced figures for the average amount spent by parents on their childcare bill each year. Figure 3 presents the mean weekly figure paid out on childcare by a family, where both parents are employed, as £73.

Figure 3: Family-level weekly payment for childcare, by family characteristics

23. This equates to £3,796 per annum for a couple with two working parents. The maximum annual saving for a family spending this amount under TFC is £759.20. The maximum saving with Childcare Vouchers however, is £1,250, as both parents can each salary sacrifice and save up to £933 a year, but the saving is capped based on income and a total of 32 per cent of the cost of childcare. For higher expenditure, the maximum saving with Childcare Vouchers increases to £1,866. For a lone parent family, the average expenditure on childcare falls to £2080. In this scenario the average saving from TFC is only £416.

24. The different Government scenarios published in its 2014 impact assessment on TFC[12], that argue more parents will benefit using TFC, only includes scenarios where families spend significantly above the national average, including a family with a single child that spends £10,000 per annum on childcare. These are not realistically aligned with what the average family spends on childcare, as illustrated in the Department for Education’s own survey.

The Childcare Voucher Providers Association

February 2018

Appendix 1

Childcare Vouchers and TFC comparison

Appendix 2

Example letter from HMRC to a parent who only applied for 30 hours free childcare, incorrectly telling them that they can’t access 30 hours free childcare while they use Childcare Vouchers.

Appendix 3

Pages displayed on the Childcare Choices website when a parent applies for 30 hours free childcare while using Childcare Vouchers, incorrectly telling them they can’t access 30 hours free childcare while they use Childcare Vouchers.

Appendix 4

Case study highlighting a user’s experience of applying for 30 hours free childcare

My Experience

I first applied for the 30 hours funding back in July 2017, the original application was a painful process with numerous pieces of personal information requested. I confirmed that I was using Childcare Vouchers for childcare costs not being covered by the 30 hours funded childcare and was able to obtain the required authorisation code.

The system has been set up so that every three months, I am required to re-confirm my eligibility rather than placing an onus on me to notify HMRC of any changes to my circumstances. I re-confirmed my eligibility in September 2017 and the process was relatively straight-forward.

I then received an email on 12th December reminding me to again re-confirm my eligibility before 8th January 2017. I logged into my account to do so and was asked ‘have you stopped your childcare vouchers?’ I selected ‘No’ as I was still using the Childcare Vouchers and assumed that this wouldn’t be an issue as it hadn’t been on previous occasions. I was therefore frustrated to find I was directed to a screen which advised me that I could only re-confirm my eligibility when I stop using childcare vouchers and that I should contact my Local Authority to find out when my 30 hours funded childcare would stop.

I then spent a couple of hours researching the 30 hours childcare eligibility through looking at the legislation and the HMRC guidance, which appeared to suggest that the use of Childcare Vouchers and the 30 Hours Funded Childcare is allowed. I logged back into my Childcare Service Account with HMRC to try to find an email address or live chat facility with a view to querying the situation. Unfortunately, neither of these facilities are available and with experience of HMRC call centres, both cost and waiting times, I decided that stopping using Childcare Vouchers would be easier. I contacted Fideliti to advise them of this and explained the reasons and thankfully their staff have taken this up with HMRC and CVPA.

I am part of the Management Committee at Little Eagles Pre-school in Nether Alderley, and we have been liaising with both staff and parents regarding difficulties that they have been experiencing with the 30 hours funding both in terms of delays and system issues. Hard working parents being offered ‘free’ childcare is fantastic in principle and it is such a shame that it hasn’t been supported better by adequate levels of funding to ensure financial stability for childcare providers and a user-friendly system for parents.

Two parent household

Single parent household

The median income for the average UK household is £35,204

Two parent household

Single parent household

The median income for the average UK household is £35,204

Additional notes for appendix 5

• Tax-Free Childcare is available to those that are self-employed but Childcare Vouchers is only available via employers.
• Well over 20 million, of the 30 million employed in the UK are employed by employers that offer Childcare vouchers.
• With the exception of East Riding of Yorkshire Council, every public sector organisation and large business offers Childcare Vouchers and 100’s of new employers register every month.
• Tax-Free Childcare is only available while both parents are employed (in a two parent household) so if one parent loses their job, they lose all access to Tax-Free Childcare during that jobless period.
• Parents can claim a combination of Childcare Vouchers and tax credits/universal credits where eligible for both. This applies to families earning less than £26,000 with one child, but families with 2 or more children can receive support at higher salaries.
• In all scenarios we have assumed there are no disabilities in the household.
• Some families may be able to combine Childcare Vouchers and Tax Credits (or Universal Credit) and make greater savings however this is not reflected in the tables which provide simple scenarios only.
• To ensure the results are not biased towards Childcare Vouchers a value based on a two working parent family of £73 per week (£3,796 pa) has been used. When looking at the average expenditure across all families, including families with just one working parent, this falls to £60 per week (£3,120 pa), and for lone parents falls to £40 per week (£2040 pa).

              Source: Department for Education, Cost of Childcare Survey, December 2017

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