Childcare tax breaks extened


The government has announced that the Child Tax Credit is being extended from 2005 to cover carers who look after children in their parents' homes

The credit is currently available only for registered childminders and nurseries and does not apply to the seven out of ten employed women with dependent children who currently use informal childcare by friends, neighbours or family for all or part of their childcare.

The rules will also mean that parents will not have to pay tax or National Insurance on the first £50 a week they spend on child care as long as their carer is registered.

"What this means is that, regardless of your income level, you are saving tax and National Insurance on £50 a week over 52 weeks in a year," said Stephen Burke, director of the Daycare Trust charity.

"That means you will be £900 a year better off as a single parent and £1,800 a year better off as a couple."

But while the new rules will be extended to nannies, au-pears, childminders working in families' homes and after-school or holiday clubs, they will not apply to grandparents or other family members because ministers believe it would be "inappropriate" to bring money into family arrangements.

Yet the bulk of childcare in Britain is undertaken by grandparents. One in four grandparents looks after grandchildren, providing childcare worth some £4 billion a year.

The exemption of family members was criticised by the charity Age Concern, which said that some grandparents face hardship if they look after grandchildren because they have to give up paid work in order to do so.

Other experts say that the changes amount to little more than window dressing, pointing out that the government is earmarking a mere £12 million to the scheme in the first year.

They also point out that the rules are to be introduced in April 2005, just in time for the expected date of the next General Election.

It will also do nothing to address the huge problem of supply-and-demand in some areas of the UK. In London, the shortage of child care is now so acute that there is only one place for every five pre-school children.

And while the changes will benefit thousands of families with household incomes of up to £43,500 a year, this ceiling makes it irrelevant to the many dual-income families in London and the South-East with full-time nannies who need to earn almost this amount just to cover the salary and employment costs of a full-time nanny.