Budget 2013: What's in it for children and families?

by Hannah Lazarus

Yesterday's Budget gave a clear message that the Government wants parents to work. The main policy initiative for families was the introduction of a new ‘Tax-Free Childcare Scheme’ for working families.

Tax-Free Childcare Scheme

From Autumn 2015, the Government will provide 20 per cent of the childcare costs of working families, up to £1,200 per child.

This is equivalent to basic rate tax relief on childcare costs up to £6,000 a year.

Families will be able to open an online voucher account and have their payments ‘topped up’ by the Government. For every 80p they pay in the Government will put in 20p up to an annual limit per child – so the equivalent of the basic rate of income tax.

                                                     

To qualify, all parents living in the household must be working, not receiving tax credits or Universal Credit, and neither earning over £150,000.

The Government will phase out the current ‘Employer Supported Childcare’ system. Existing members of this scheme will be able to choose whether to remain on their current scheme or move to the new scheme (if they are eligible).

The tax exemption available for workplace nurseries will remain.

The new system will be phased in from autumn 2015. From the first year of operation, all children under five will be eligible. Disabled children up to age 16 will also be eligible. The scheme will then build up over time to include children under 12.

The Government will consult shortly on the detailed design and operation of the Tax-Free

Childcare Scheme

How does this differ from the current childcare voucher system?

Under the current Employer Supported Childcare (ESC) system, the Government allows a tax exemption on childcare vouchers. The scheme is only available to around 500,000 families and fewer than 5% of businesses choose to offer it.

The Tax-Free Childcare Scheme offers support to more parents than the ESC. ESC will begin to be phased out when the new voucher system is introduced.

Anyone receiving support through ESC will be able to stay in that scheme if they want to, but it will be replaced for new entrants by the tax-free childcare vouchers when they are launched.

Tax-Free Childcare Scheme	Employer Supported Childcare
1.3 million families with children under 5 (rising to up to 2.5 million families when children under 12 are included)	500,000 families
Available to all eligible families	Relies on employers choosing to offer the scheme
Includes self-employed people	Doesn’t include the self-employed
Pays up to £1,200 per child	Pays up to £900 for each parent regardless of how many children they have
Provides support for children under 5, expanding to under 12′s in the future	Provides support for children up to 15 years old
Provides support for families where all parents are working	Provides support for families where at least one parent works

Childcare support for those qualifying for Universal Credit

The Government also announced that it is to increase assistance for parents who receive childcare support through Universal Credit, which in due course will replace tax credits.

An additional £200 million will be provided to increase childcare support in Universal Credit. This is equivalent to covering 85 per cent of childcare costs for households qualifying for the Universal Credit childcare element (where either a lone parent or both parents in a couple pay income tax).

The aim is to improve work incentives and make it worthwhile for low and middle income earners to work up to full-time hours.

This additional £200 million is planned to be phased in from April 2016.

Free early education and childcare

(not a Budget measure but referred to in Budget documentation)

 

If you have a child aged 3 or 4 you are entitled to 15 hours a week of free early education and childcare. The Government has now committed to extending this to around 20 per cent of the least advantaged two-year-olds, around 150,000 children from September 2013.

In May 2012 the Government confirmed that two-year-olds who live in households which meet the eligibility criteria for free school meals will be entitled to a free early education place, along with children who are looked after by the state.

From September 2014 the number of two-year-olds who will be entitled to a place will rise to around 40 per cent of two-year-olds. The Government proposes to build on the eligibility criteria for the first phase – so children who meet the free school meals criteria or who are looked after would continue to be eligible – and to extend free places to more low-income families, two-year-olds with special educational needs or disabilities, and those who have left care but are unable to return home.

Ministers will seek the views of the early years sector and voluntary groups, to define disadvantage to ensure the funding is targeted on those children who would benefit the most.

Children’s savings

In November 2011, the Government introduced Junior ISA, a new tax-advantaged savings account for children under the age of 18.

Children who have a Child Trust Fund (CTF) are currently ineligible for Junior ISA, although the Government has ensured that children with CTF accounts are not disadvantaged by increasing the CTF subscription limit to equal the Junior ISA limit (£3,600 in 2012-13 and £3,720 in 2013-14).

The Government wants to support parents by ensuring that there continues to be a clear and simple way to save for all children, and will therefore consult on options for transferring savings held in CTFs into Junior ISA.

What did you make of the Budget? Will you benefit or lose out? Let us know by commenting below. (Please note that any views expressed are those of individuals, not of the NCT).

 

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