Labour Party Conference: Childcare vouchers to lose tax relief

The government will scrap tax and national insurance contribution exemptions for childcare vouchers provided by an employer, instead offering free childcare for 250,000 two-year-olds, Gordon Brown has announced.

In his keynote speech to the Labour Party Conference in Brighton, the prime minister revealed from April 2011, employees who join an employer-supported voucher scheme will not be entitled to the existing exemptions.

The exemptions, which cost the UK £500m for 2008-09, are worth up to £900 for a basic rate taxpayer and £1,200 for a higher rate taxpayer. For every employee who joins a childcare voucher scheme, employers save up to £373 a year.

Today the prime minister announced the funding would instead go towards free nursery places for two-year-olds so that 250,000 children will benefit by 2015-16.

He said: “I am proud to announce today that by reforming tax relief we will by the end of the next Parliament be able to give the parents of a quarter of a million two-year-olds free childcare for the first time.”

The Department for Children, Families and Schools told Personnel Today the removal of the tax and NIC exemptions for childcare vouchers provided by an employer would be done through a “phased withdrawal”.

“From April 2011, employees who join an employer-supported voucher scheme will not be entitled to the existing exemptions. Existing recipients of vouchers will be unaffected until April 2015, when the exemptions for vouchers will be withdrawn completely. These changes affect childcare vouchers only – the long-standing exemptions for workplace nurseries will remain unchanged,” a spokeswoman said.

Exact details of the scheme will be announced in the pre-budget report, expected in November.

Childcare vouchers are offered by more than 35,000 employers in the UK, according to HMRC figures.

Childcare providers were alarmed at the shock proposals to remove the exemptions. A joint statement from four childcare providers Accor Services UK, Computershare Vouchers Services (formerly called Busy Bees Childcare Vouchers), Grass Roots Group and Sodexo Pass, said: “We believe that the government must protect this essential support [childcare vouchers] for working parents and businesses in the UK.

“As we move towards recovery from recession, this is not the time to be making life harder for hundreds of thousands of families. Britain’s ‘squeezed middle’ rely on tax-exempt childcare vouchers to help pay for quality childcare.” 

UK childcare arrangements

  • The government offers free nursery places for all three- and four-year-olds. At the last Labour Party Conference, the prime minister announced this would be extended to cover two-year-olds as well, starting with the most disadvantaged. Some 23,000 two-year-olds currently benefit.
  • Tax exemptions for childcare vouchers were introduced in 2005. They allow employers to provide their employees with up to £55 per week of vouchers without employer or employee being liable for tax or NICs on the value of the benefit.
  • In 2006, the National Centre for Social Research estimated that one-third of users of childcare vouchers paid higher rate tax.

More on Gordon Brown’s speech

The prime minister pledged to create 20,000 new skilled internships and ‘green’ work placements to help tackle youth unemployment.

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