Budget 2013: Childcare voucher system set for overhaul

Last updated: Mar 22nd, 2013

The government is to overhaul the childcare voucher system, enabling working parents to recoup up to £1,200 a year per child in childcare costs.

The new scheme will apply to care for children up to the age of five at first, before gradually extending to children up to the age of 12.

Parents will buy vouchers from the government rather than directly through their employer, which is how the current voucher scheme works.

Children's minister Elizabeth Truss insists the changes mean 2.5 million families will be able to benefit from childcare vouchers, rather than 500,000 currently signed up.

The proposed new system will enable all parents earning below £150,000 to take advantage of the scheme, including self-employed who are currently excluded.

Is the new system better?

However, while the government insists the new system is "better", critics are not so sure.

The first criticism levied is that the changes won't come into effect for two years. This means parents excluded from the current scheme will continue to bear rising childcare costs alone.

Another shortcoming of the scheme is that families where one parent doesn't work won't be eligible for vouchers - at the moment each working parent can claim childcare vouchers, but under the new rules it will only apply to each household. This means two parent families where only one is working will no longer be eligible.

Introducing a new system rather than expanding the original one will also come at a cost.

One lobby group warns administration costs are likely to go through the roof, which, of course, will then have to be passed onto parents. And the figures announced so far seem to prove this is the case.

Under the proposals, parents will be able to claim back 20% out of around £6,000 – the figure the government puts the average annual cost of a childcare place. But that £1,200 clawback is significantly less than the £1,866 a family with two working parents paying basic-rate tax currently receive.

And because vouchers will no longer be purchased direct from employers, there is concern that fraudulent claims will spring up.

Beneficial to working familes

Julian Foster, managing director of Computershare Voucher Services, a voucher scheme provider, said: "We have been calling on government for some time to extend the current childcare voucher scheme and much of what has been announced today will be beneficial to working families.

"New funding in a difficult economic time is a sign of the government's commitment to helping working parents find affordable childcare. In particular we are delighted that this greatly-valued source of support will be extended to the self-employed for the first time.

"However, many parents will be very disappointed that the proposals will offer them no immediate help. The government could still introduce some simple measures now – such as increasing the tax-free limit for childcare vouchers from the start of the new tax-year and introducing a right to request the scheme from their employer – which would help working parents straight away."

Parents already part of an existing childcare voucher scheme, or those who join before the new scheme comes in, will continue to receive the vouchers under the current rules.