Outlook improves on costs of childcare

Tony Blair, the Labour leader, set women's hearts a-flutter recently. In an interview in this month's She magazine, Mr Blair, husband of a working mother, said tax relief on childcare was ``one of the things we are looking at''.

Here is a politician who can spot a vote-winner. Parents who use a full- time nanny resent paying their employee out of their taxed income. National insurance contributions alone come to over £1,000 for a nanny paid £200 a week.

Before the ranks of executive parents get too excited about the possibility of income tax relief on their childcare costs, it has to be said this is not a firm Labour Party commitment. Nor is it a high priority.

Tax relief would benefit the middle classes earning enough to hire a nanny at all, and would amount to a tax break of £2,000-£4,000 a year depending on the parent's tax rate. It simply has not been ruled out at this stage.

The good news is that the party has said childcare is a central question. Gordon Brown, shadow Chancellor, said: ``Childcare is, in my view, an integral part of the economic infrastructure, just as transport and health are.'' He sees improving the quality of early care as part of the party's programme of investing in skills and training, and stresses the economic returns promised.

Britain lags behind other industrial countries. It has the lowest proportion of state-funded childcare in the EU: 95 per cent of French toddlers are offered places in the coles maternelles, while at the other extreme only 35 per cent of British children get any kind of playgroup or nursery place.

The sole benefit the state offers at the moment is tax exemption on workplace nurseries, introduced in the 1990 Budget. The employer gets a deduction against taxable profits, and the employee does not pay tax on the benefit. Which is fine as far as it goes, but there are only a few hundred such nurseries in the UK. The cost to the Exchequer is minuscule.

Glenn Leitch, a tax partner at accountancy firm Ernst & Young, believes tax relief would be the most helpful change for higher-earning working mothers, but points out the Inland Revenue would worry about abuse of such an allowance.

``An easier policy might be to extend the principle of the workplace nursery exemption, and allow tax benefits if the employer made a contribution to the cost of a nursery outside the workplace,'' he said.

Recognition of the need for some improvement in childcare provision and affordability is bipartisan. However, only Labour has laid out its wares (see below).

It is no surprise that Labour is most concerned to help women from low- income families back to work. Despite the success of family credit in alleviating the poverty trap for some families, many women are still in effect barred from work by the withdrawal of benefits once they start earning.

Even though this is the priority, however, all would-be working mothers can draw comfort from politicians' growing recognition of their childcare problems.

The author is Economics Correspondent.


l Benefit system to stop withdrawal of benefits for low-income parents. Probably a ``working parents' disregard'' - income allowance for second earner in assessing benefit entitlement.

l Promote creation of new nurseries and after-school schemes through incentives for public-private partnerships.

l Give non-working mothers access to Re-Employment Scheme, Jobclubs, training schemes.

l Considering a range of other policies to make it financially worthwhile for at-home parent to go out to work - including tax relief.