Please, Mr Chancellor, why don't you . . .: 'Independent' contributors make their pleas and suggestions to Kenneth Clarke for tomorrow's Budget - Child Care: A benefit that would give parents the choice

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The Independent Online
THE GOVERNMENT has to tackle child care in the Budget. The pressure has been building up for decades, and now the huge hidden costs of child care are creeping into the economic and tax statistics, while a growing army of mothers juggling jobs and children are crying foul.

The root of the problem is the triple standard we apply to child care: parents with an earning partner who do their own child care are deemed to have no economic value and their work goes unpaid; child care by many lone parents is a charge to the taxpayer in extra social security; and if parents have jobs and employ someone else to care for their children, the cost must be paid from after-tax earnings.

The child care which appears cheapest for the state is probably most expensive for the family. One study shows DIY child care costs around pounds 150,000 over a lifetime. (This is for a woman with two children on earnings of pounds 9,000 a year at age 24 who works part-time once her children are at school.) So long as the caring parent remains in a relationship, this cost is borne by the family. But if the relationship breaks down, it shifts to the absent parent or the taxpayer. The problem is exacerbated by the decline in the extended family, reducing 'free' child care available.

Lone parents must remain a priority. But a change in the Government's attitude could help parents generally and also cut the costs of lone parents by replacing some means-tested income support. It would ease Child Support Agency problems by cutting more than pounds 80 a month off CSA demands from absent fathers. Four options are generally mooted, each appealing to a different constituency.

First, subsidies for creches and after-school provision, with a sliding scale of fees according to what families can afford. Strands of this policy are supported by all three main political parties. Second, a new childcare tax allowance which parents who care for children could use to offset the cost of child care against tax. This is favoured by many earning women. Third, the reintroduction of child tax allowance. This favoured by some right-wing Conservative MPs, probably combined with the abolition of child benefit. Fourth, a new taxable parents' benefit or an increase in child benefit, which should be taxed as the income of the caring parent.

The difficulty is that no single option, except more benefit, helps everyone. A workplace creche is no good at the end of a crowded commuter journey; no use to parents who work early or late, or to employees of small companies or the self-employed, and no contribution to the hidden costs of those who care for their own children.

Tax allowances for child care are attractive to earning women who complain that their income is taxed twice - which is true when the carer declares the earnings for tax. These women see the cost of child care as an unavoidable cost of their work - which they implicitly see as a greater contribution to the economy than DIY child care by a parent - and say they should therefore be able to offset it against tax. But this argument does not stand examination. People who save from taxed earnings, for example, have the income from their savings retaxed every year. Moreover, earning involves many unavoidable costs that cannot be offset against tax (travel to work, for instance).

But the two big arguments against childcare tax allowances are that they help only the better-off parents. They do nothing for those seeking to get off benefit into earnings, and take no account of the contribution of DIY parents.

If child tax allowances were to replace child benefit, this would also remove the sole income available to many mothers in their own right, putting the money into the pockets of men.

In contrast, an increase in child benefit or a new parents' benefit would reach all families. By giving money to each mother, child care would be left to each family to decide. No doubt such a payment would create demand for creche provision in some areas, for more childminders, preschool provision, etc. But the provision of service would be customer-led.

A parents' benefit would not help everyone equally, however. Disregarding any tax changes, the main effect of the parents' benefit option on a family where the husband earned well would be to transfer money from husband to wife. Those just above the income support line would benefit most, which would make it more worthwhile for such parents to accept paid work.

The Treasury hates all benefits. Any hint that a parents' benefit would encourage all those 'feckless' teenage girls to have more babies would have to be quickly squashed: receipt of the benefit would reduce income support pound for pound.

A parents' benefit would not come free. Savings would have to be found to pay for it. The obvious solution would be to abolish the pounds 1,720 married couples' tax allowance (MCA) for non-pensioners, which would release pounds 3bn in 1994-5. Time was when political considerations might have prevented the Conservatives from abolishing the MCA - the income of many wives among their supporters was too low for them to benefit from their own personal tax allowance. But the employment position of married women is now quite different, and the political benefits of switching the MCA from marriage to childcare responsibilities must now be overwhelming.

In fact, the MCA should have been abolished long ago. It is an anachronism dating back to the time when only rich men paid tax and middle-class women spent their lives as a financial burden on their fathers or their husbands. If it were abolished, however, the additional personal tax allowance for unmarried parents would also have to be abolished when they are cohabiting, so as not to discourage marriage.

It would be possible to use the proceeds from abolishing the married couple's allowance to increase child benefit, rather than create a parents' benefit. In theory, child benefit helps to pay for food, clothing, etc, not for child care or the cost of the caring parent's lost earnings. So conceptually, parents' benefit would be clearer.

Parents' benefit would be the same amount for one child or more. It could be scaled according to the age of the youngest child - available in full, say, where the child was under five, at 50 per cent for ages five to 11, and at 10 per cent for 12-16, to reflect changes in the caring parent's earning capacity. Crucially, because benefits are paid to parents even when they provide the child care themselves, the benefit approach also takes account of children's need for more parenting. This was highlighted in the recent study by Professor Omitai Etzioni (The Parenting Deficit, Demos).

How much could the Government afford to give mothers if it abolished the married couple's allowance? One study (Independent Benefits for Men and Women, Esam and Berthoud, Policy Studies Institute), using 1990-91 figures, concluded that a benefit of pounds 20.90 to parents of children under five and pounds 10.45 during school-age would also need a 0.8 per cent rise in the standard rate of income tax. On this basis the pounds 3bn available in 1994-5, plus the bigger savings in income support, might yield a parents' benefit of around pounds 20 a week where the youngest child is under five, pounds 10 from ages five to 11, and pounds 2 from 12-16.

Mary Campbell, Financial journalist.

(Photograph omitted)

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