Childcare loans plan could boost tax revenue

A cross party think tank has proposed that parents be helped to pay for childcare by borrowing up to £10,000 from the Government, repayable through the tax system. 

The plan by the Social Market Foundation could help many couples cope with the soaring cost of bringing up children and could pay for itself in increased tax receipts if it enabled more parents to work full time.  Ian Mulheirn one of the Foundation’s directors said:

“Childcare costs impose a huge burden on families and can mean that it’s simply not viable for some parents to go to work.  By helping parents spread the cost through manageable monthly contributions, this innovative scheme can help parents do what’s best for themselves and their children.  Our model would ensure that support is provided when families need it and they would only pay back when they can afford to.”

Independent research found that parents have been hit hardest by last year’s changes to the tax system.  They will also be hit by changes which come into force next April in which all households containing one higher rate taxpayer will be stripped of Child Benefit; even if total earnings are lower than parents where both go out to work but remain basic rate taxpayers.

Under the plans, all working parents with a child under school-age would be eligible for childcare loans which would be charged interest at three percentage points in excess of inflation. The main earner would start repaying the debt in instalments equal to 6% of their gross income above the income tax personal allowance, which will be £8,105 in the tax year that begins on April 6th.

A recent YouGov poll of parents with children aged under five found that 57% thought that the scheme was a good idea.  A quarter of parents not currently using childcare and 28% of parents relying on friends or family said they would use the scheme if it were available.

Andrew Cross, Principal Tax Consultant @arcustax said; “In theory this sounds like a good idea, however past experience makes you wonder if the IT and other implementation costs would outweigh the benefit.  In addition, a loan at 3% above inflation (which in today’s terms would be around 8%) is hardly giving it away.”

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