Childcare: a question of national priorities

As `The Independent' launches its campaign for tax subsidy on childcare, Diane Coyle considers the costs involved while Glenda Cooper looks at the present arrangements and what they mean for a lone parent who wants to work
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Which of the following uses of government money would most people in Britain regard as more valuable? Tax relief for drivers who use their car for work? An annual subsidy to farmers who grow arable crops like wheat and oilseed rape? The yearly cost of "policy and management" at the Ministry of Defence? The "bricks and mortar" subsidy of mortgage interest tax relief? Or government help for childcare?

Although few would quarrel with the idea that an investment in the nation's children ought to be an important priority, the truth is that it is not reflected in government policy. Even though the Government has announced that it will introduce a National Childcare Strategy, it has not, yet, put the muscle of real money behind it.

For evidence about its priorities, compare the Welfare to Work spending on after-school childcare, intended to help lone parents (mainly women) return to work, with the New Deal spending on young people unemployed for more than six months (mainly men). The figures are pounds 300m and pounds 3.2bn respectively. The financing speaks the real language of priorities.

Parents pay a higher proportion of the cost of childcare in Britain than virtually every other advanced economy, meeting 93 per cent of the cost.

According to the Daycare Trust, the childcare campaigners, the typical annual bill for a family with two children, one at school, is pounds 6,000. This amounts to nearly a fifth of gross income for a two-job couple each on national average earnings - half as much again as the same family would spend on food.

The Treasury has signalled that Gordon Brown will take one significant and welcome step in his Budget on 17 March. He will make the current childcare element of Family Credit far more generous, and available to many more families, when the replacement working families tax credit is introduced.

If the new childcare credit for those on low-incomes is indeed as generous as the hints from those close to the Chancellor indicate, it will lower a significant barrier to work for many women, especially single mothers. Lone mothers in the UK have amongst the lowest rates of employment compared to other countries because of what the Institute for Fiscal Studies has described as "the significant work disincentive costs of childcare in the UK".

But assistance for childcare targeted only on the very low-paid ignores the same cost for millions of other women. They might earn somewhat more; but even for those on close to average earnings, paying for childcare makes the decision to go out to work touch-and-go financially for the second earner in the family.

The need is certainly greater for the least well-off, but there is an overwhelming case for additional government support for childcare - especially when compared with the other uses to which government money is put.

A basic-rate tax allowance of around pounds 1,800 a year, similar to the married couples' allowance, and made available to one parent in a family using paid registered childcare, would cost the Exchequer pounds 1bn-pounds 2bn a year.

This would compare with the expected cost of the crops subsidy of pounds 1.3bn; the pounds 1bn a year subsidy to business drivers; the pounds 2.7bn cost of mortgage interest tax relief; and the pounds 1.7bn the MoD spends on policy in a year.

If the Government did not want to divert money from these priorities, it could chivvy departments into selling off some of the surplus assets like car parks and empty buildings identified last November in the National Asset Register. Despite the fanfare that greeted the 1990s "Domesday Book", no wasted assets have yet made it to market.

Some campaigners favour different schemes such as direct subsidies to childcare providers or low-cost loans to parents.

But the advantage of a tax allowance is two-fold: it is administratively simple and it creates a direct incentive for women to work. It would potentially make available to employers the skills and effort of some of the 2 million- plus women with dependent children who do not work.

Some economists would argue that it has the disadvantage of simply giving money to parents who are already at work and paying for childcare. True, but this overlooks the fact that the mere fact of having children imposes a huge financial penalty on women, reducing their lifetime earnings by tens of thousands of pounds. If the Government is as family-friendly as it claims, a new childcare allowance would signal that it recognises the value this financial sacrifice contributes to the economy as a whole.