Imagine you are a successful journalist. You have kids and need to pay for childcare – because in order to do your job you have to go out and interview people. But when you look in to it you are astonished at how much it costs. You look at everything else that you pay for in order to do your job: a paper clip, a train journey, taking people out to lunch and you realise that it is all tax deductible. But the one thing you really need, and costs you the most, is childcare. And it is not tax deductible. You are outraged. For every £1000 you pay to the Nanny, you are also paying George Osbourne up to £450 in tax. how can that be right? In over 30 years of working in this field I have heard this story so many times and have marvelled at how upset journalists can get about the issue.
And now David Cameron has put it at the top of the political agenda with The guardian reporting that he told a Manchester business woman after making a speech in the city that he was “hugely attracted to the idea of making childcare tax allowable”.
But whilst it may be great for those who pay tax it does nothing for those at the bottom of the earnings ladder; those on Minimum Wage who are paid so little that you don’t get above the tax thresholds. Because then you get no extra benefit from this proposal. And part of this Government’s policy is to raise thresholds. So many people on Minimum wage have no taxable element to offset their childcare costs against. And you might just remember that one of the first things this Government did was to cut the rate of childcare support for the poorest by lowering the childcare element of Working Tax Credit from 80% of costs to 70%.
Tax Breaks will also benefit couples more than lone parents as they have two incomes on which they can save money. The better off you are and the higher tax rate you pay the more you save.
And my guess is that what would probably happens is that the extra funding made available to middle class parents from tax breaks make childcare even more expensive and squeezes low income families even further.
So this is a bad way to spend limited resources. But might go down very well with high income families – so expect some positive coverage in the coming weeks.
Some articles on Tax breaks