Viv Groskop: Why tax breaks for chauffeurs but not kids?

Thousands of women don’t work because they begrudge spending £500 a month on childcare

Click to follow
The Independent Online

Do parents deserve more help with childcare? This issue is reaching crisis point. Dozens of reports in recent months have shown that childcare is becoming the single biggest recession issue for parents. For families it's the biggest household expense – above mortgage, rent or food.

All of a sudden a new wave of campaigners is asking a basic question: "Why isn't childcare tax deductible?" No one is suggesting all childcare should be written off against tax. This would be a bureaucratic nightmare – although let's not forget that to have someone drive your car is a fully allowable business expense. To have someone look after your children is not.

No matter. The campaigners are realistic: they want extra tax deductions for the self-employed and the safeguarding of tax credits for the rest. Karren Brady of The Apprentice and West Ham fame now mentions tax-deductible childcare in almost every interview she gives. Coronation Street actress Kym Marsh has campaigned – on behalf of single mothers – against the cuts to the current tax credit system.

Now Holly Tucker and Sophie Cornish, the two businesswomen behind internet success story Not On the High Street (a retail portal for little-known and handmade brands), are getting involved. Their venture has gone from a turnover of £100,000 in 2006 to £26m last year. Their book tracing their company's history, out this week, puts a demand for tax breaks at the centre of their women-friendly business philosophy. Cornish: "Until childcare is tax deductible, we do not believe that the playing field is level for mothers starting up businesses. Working tax credits, while laudable, only apply to those on a very low income."

The pair calculate that when they started out, they would have needed to earn £40,000 a year just to break even. That figure covers only tax and full-time childcare. That's it. "It won't pay the mortgage or rent, food bills, clothing, heating, phone. That's shocking. Yet our business was pumping huge sums into the UK economy."

Childcare and tax are deeply unsexy. Perhaps if we could find a Fifty Shades of Grey way of talking about it, it would make headlines. But until then we must make do with the facts. Since 2005, employees and the self-employed have been entitled to receive £50 a week of childcare free of income tax and National Insurance contributions. But with the cost of living soaring, how beneficial is this tax break? Especially bearing in mind that another 40,000 families lost it from April. From HMRC: "As a rough guide, you may get an award of Child Tax Credits if you have two children and a household income of up to about £32,000." (For one child, it's £26,000). This £32,000 figure is interesting. The recent much-cited report from the Joseph Rowntree Foundation calculated that "a couple with two children needs to earn £36,800 to have "an acceptable standard of living". So now the Government's tax credit figures are helping only those who are already living below that standard. No wonder politicians are jittery about the squeezed middle.

In private, Cameron and Osborne are toying with new ideas, especially ones which could be billed as a "reward" for entrepreneurship. In February, the Prime Minister expressed interest in a Swedish scheme that cuts the cost of employing domestic staff. In Sweden, mothers who work are given tax breaks which cover up to half the cost of employing help. Of course, Cameron immediately gets lampooned for this sort of thing. He doesn't want it to seem like domestic help is the one thing he understands when Sure Start is not. The argument against making childcare tax deductible is that it's effectively helping people who are not on the breadline, such as the self-employed or people who can "afford" nannies. This is ultimately why it is unlikely to be embraced by our Etonian friends: it plays too strongly to stereotype. But as a recent Mumsnet poll showed, 14 per cent of parents have borrowed from friends, family or on credit cards to pay for childcare; 17 per cent have been unable to pay childcare fees on time. Plus, childcare is an industry: the jobs of nannies and childminders need protecting. Their hours are the first to be cut in a recession. We have already lost half our childminders (down from 103,000 to 57,000) in the past two decades.

This is exactly the time we need to encourage entrepreneurship and growth. There are thousands of women who don't work because they begrudge spending upwards of £500 a month on childcare. Meanwhile, the Government is closing Sure Start centres. More than 100 have shut since the Coalition took power. Six will close in Coventry alone next month.

By freezing child benefit for three years, the Government manages its costs and sends a warning signal to parents: don't expect too much from us. By restructuring tax credit and cutting back Sure Start, they don't help those who can't help themselves. And by refusing to acknowledge that a childcarer is essential to a working life when a chauffeur is not, they don't exactly encourage those who can help themselves either. Good luck, breeders!