Brown backtracks on childcare vouchers

Baby shoes

The government has backtracked on plans to scrap the tax breaks on childcare vouchers following a public backlash.

During his speech at the Labour Party conference, Gordon Brown told delegates that he wanted to reform the tax relief on these vouchers in order to fund free childcare for a quarter of a million low-income families.

A petition on the Prime Minister’s website highlighted the lack of public support for such a move. More than 92,000 people signed the petition calling for tax breaks to remain in place.

Politicians also waded into the debate, with nine former ministers writing to Brown, warning him that he risked axing popular support for hard-working parents - all too crucial in the run up to the general election.

The ministers, including Patricia Hewitt, Estelle Morris, Hilary Armstrong, Beverley Hughes and Caroline Flint, said the plans to cut childcare vouchers for more than 340,000 parents were "greatly unfair" and "mark the undoing of one of Labour's landmark achievements".

Brown has now confirmed that all families who currently receive vouchers will continue to get the same support - and that tax relief will be retained for any new childcare vouchers that are issued in the future.

However, from April 2011, all new recipients of childcare vouchers will get the same income tax relief as basic-rate taxpayers currently do. Brown says this will ensure the system does not disproportionately benefit higher-rate taxpayers.

“No family currently in receipt of tax relief for their childcare vouchers will see any change in the support they receive,” says Brown.

“Following our discussions, I can now also say that we will retain tax relief for new childcare vouchers issued in the future. This will not affect those receiving vouchers issued before that date.”

The government will also continue to make progress to provide free part-time nursery places for all two-year-olds whose parents want them - albeit at a slower rate.

Childcare vouchers enable working parents to use £243 of both their pre-tax income to buy childcare vouchers. Because this money is free of income tax and national insurance, parents currently receive a tax break equivalent to 31% if they are basic-rate taxpayers, or 51% if they pay the higher rate of tax.

As a result, childcare vouchers can save parents up to £1,195 per parent on childcare costs, according to provider Childcare Choice. Employers also benefit, as they pay a lower amount of employer national insurance.

Parents claiming childcare vouchers do not have to use them in the week or month they are issued - you have the option to save these up and use them at a later date, such as the school holidays. It is up to parents to check whether their childcare provider accepts vouchers.

Employers are not required by law to provide employer-supported childcare to their employees. 

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