· 7 min read · Features

Childcare funding - Parents' little helper


As childcare vouchers celebrate their 20th birthday, David Woods finds out what HR professionals and industry experts think of the perk and how it will develop in the future.


Since childcare vouchers were introduced they have grown to be a crucial part of the way many parents pay for childcare. In 1989 large firms wanted to offer an incentive to mothers returning to work, so Accor established the first childcare voucher scheme, which was offered in addition to an employee's salary as an alternative to cash bonuses for women returners. Other voucher companies set up similar schemes and together they lobbied for tax exemptions, which they won in 2005 when the Government introduced income tax and National Insurance (NI) exemptions to employer-supported childcare to encourage more employers to help meet the cost of registered childcare. NI and tax exemptions were initially for a maximum salary sacrifice of £55 a week or £217 a month, but this was increased by 10% in 2006, to £55 a week or £243 a month.

Childcare vouchers saved employers an estimated £132 million in NI contributions in 2008/9 and can save parents up to £1,195 a year. However, the current imbroglio over whether childcare vouchers are affordable for employers when they have to be paid throughout the entire period of an employee's maternity leave is a cause for concern (see p41). Government must act to safeguard the future of childcare vouchers by advertising their benefits to employers in recruiting and retaining staff, while addressing the issue of additional costs for employers.


Over the past 20 years a growing number of employers have recognised the importance of investing in family-friendly initiatives that enable working parents to enjoy a positive work-life balance and feel truly engaged with their employer, their peers and their work. From the right to request flexible working to enhanced maternity and paternity benefits, as well as employer-supported childcare and inclusive working parent-focused benefits such as childcare vouchers, the range of support available to working parents has never been greater.

Family-friendly policies are now an established and essential factor in maintaining a productive and engaged workforce, particularly in the current economic climate. And as more organisations integrate efforts to support working parents with broader organisational objectives, they are reaping the rewards of engaging this group of employees that represent more than one-third of the UK's workforce.

But to continue to support and engage working parents employers will need to come up with new, creative and innovative ideas to support them. Working parents will continue to comprise an increasing proportion of the workplace and, as working patterns and society changes, employers will need to adapt and evolve their policies. Hopefully sometime in the near future we will have organisational cultures where it's possible to have a fulfilling career and be a parent.


Technology has played the biggest role in the evolution of childcare. Parents used to have to receive paper vouchers, hang onto them and hand over the crumpled bit of paper to carers when settling their bill. Now, with a wealth of technical advances and widespread access to the internet, paper vouchers have been surpassed by their electronic cousin, offering a more efficient user experience.

Parents have also become far more savvy about benefits in the past 20 years. The number of people requesting childcare vouchers in the UK has shot up from a couple of thousand 10 years ago, to hundreds of thousands today.

Most recently, the financial crisis has meant we have seen around a 30% increase in the number of parents signing up and about a 20% rise in the number of employers offering vouchers.

The future is undoubtedly bright for childcare vouchers. But there are plenty of employers that are not yet offering the scheme - and an even greater number of parents who are unaware of the savings they could be making.


At Hertfordshire County Council we employ more than 32,000 staff, approximately 80% of whom are female. We are committed to supporting employees with caring and parenting responsibilities and continuously strive to find ways of successfully enabling our staff to combine caring and parenting responsibilities with work. We have a number of initiatives in place to do this.

Childcare vouchers are a central plank in this. Some 31% of our workforce has declared they have caring responsibilities, of which 87% involve children. Childcare vouchers are available to all employees through salary sacrifice, and at present 478 of them benefit from this scheme every month, gaining up to £243 tax-free worth of vouchers per month, per parent. As an organisation that employs a significant proportion of the local population, we place a strong value on supporting parents to work. Offering childcare vouchers has minimal impact on the council compared with the significant difference it can make to parents - particularly in an economic climate where many are struggling. As an employer we also reap many benefits. By supporting our staff we get in return a group of motivated and committed employees.


Finding quality childcare, which is affordable, is quite a challenge for most working parents, so being able to offer our employees a way of reducing childcare costs was something we were really keen to do. Wragge & Co introduced its childcare voucher scheme in July 2005 and take-up has continued to grow.

Saving tax and National Insurance on the value of the childcare vouchers taken really makes a difference, especially to what is usually an already stretched family budget. In some cases, it's the difference between whether or not an employee is able to return to work following maternity leave. The fact that men as well as women can take advantage of this scheme means that often a family may be able to make double tax savings.

At Wragge & Co we offer employees a range of benefits and policies that makes life a little easier for employees with children, as well as enabling them to have more choice when it comes to balancing their need to work with the needs of their children. Childcare vouchers remain one of the main benefits we can offer these employees and with most company budgets feeling the strain, the fact that providing our scheme is cost-neutral to us is an added bonus.


Childcare costs are high and even if the vouchers are taken through tax-efficient salary sacrifice and not an additional employer-provided benefit, anything that reduces the costs of childcare is welcome. Parents like vouchers because they are simple, but they need support to understand the implications if vouchers are provided as part of a salary sacrifice scheme (for example, the effect on pensions, future maternity pay, etc).

Many parents don't understand the relationship between childcare vouchers and help with childcare costs that is offered through the tax credit system. Without adequate support parents may not make the best choices for their circumstances.

The differing sources of help with the costs of childcare are too complicated and the system needs to be looked at to make it more straightforward for parents to make choices as their children grow older. If both parents are in a voucher scheme, they can both benefit and this can significantly help to chip away at childcare costs. In addition, where childcare costs are higher than the maximum eligible amount for tax credits, or the parents don't qualify for the childcare element for some reason (perhaps because one is not working), vouchers are a real help and the choice becomes much easier.

We know some employers are now ending their childcare voucher schemes because of the costs of providing vouchers to women throughout their maternity leave when there is no salary to sacrifice (see p41). The tax exemptions in the scheme were designed to aid both employee and employer, so we are concerned there is now a disincentive to continue this employee benefit.


Childcare vouchers are firmly entrenched as an integral part of employers' benefit and reward structures. They are considered an essential tool to promote employee engagement, support recruitment and retention, and enhance productivity. They are popular with parents, employers and childcare providers alike. Recent Treasury estimates showed childcare vouchers are delivering more than £500 million of secure childcare payments to registered and approved providers every year. To build on this success, and to promote consistently high performance across the sector, leading providers have come together to produce a Code of Practice setting out voluntary minimum standards to meet the expectations of users. Following a broad consultation process, the Code of Practice is scheduled for launch this autumn. Reflecting issues raised by the sector, central tenets of the Code will include measures to safeguard clients' money and to support childcare providers by providing clear accessible information and transparency over payments. Self-regulation by the childcare voucher industry is an important step forward. With the sector maturing, and increasing numbers of employers and parents getting involved, it is vital providers demonstrate a robust commitment to best practice, ensuring reliable, secure and timely payments and guaranteeing peace of mind for parents who rely on the scheme to meet the cost of quality childcare.


The cost of childcare has risen dramatically over the past 20 years, forcing parents to think carefully about their finances and when they return to work. Childcare vouchers counter this by offering working parents, both mothers and fathers, potential savings of £1,195 each per year on their childcare costs.

Childcare vouchers were introduced in their current form by the Government in 2005 (when income-tax and National Insurance (NI) contribution exemptions came into being). Since then, they have become one of the most popular staff benefits and are a core part of the remuneration package.

The business benefits of vouchers have had a significant impact on the workplace. Not only do they provide financial benefits in the form of reduced NI contributions, but they have also been proven to reduce absenteeism, aid employee recruitment and retention and enhance the reputations of companies that use them.

The evolution of paper to electronic vouchers over the past few years has made vouchers extremely easy to set up and use and we have worked closely with our customers to ensure our scheme can be simply integrated into their payroll systems.

We work with customers and working parents to develop our products, and help them deal with issues such as the recent changes to the Sex Discrimination Act. We're also lobbying Government to introduce a similar voucher scheme to help employees manage the costs of looking after elderly relatives.


One of the joys of becoming a father again, especially in your mid-fifties, is that you get to do stuff that you dress rehearsed with the older offspring decades before. So when Tilly Rose was a year and a bit, we put her into a local nursery to help her develop her social skills and to allow me (when in the UK) to deliver her and pick her up for a bit of bonding. As the boss of Grass Roots Group, I paid the fees on our Care4 rejoicing that this is about the only tax relief I could celebrate.

The Grass Roots UK staff were the test team for the Care4 service - no sterner test can anyone have than to be told by their own proud staff how to make it the best. We are proud of the small part we have played in getting Gordon Brown (then chancellor) to get his financial beans in a row and importantly to make the admin easy.

But I have concerns for the future of childcare vouchers: for one thing, the Tories may (in government) kill them off. Tilly got a lot out of her early nursery placement. I would have done it without the benefit, but then again I could afford it. For others it's a necessity, not a choice.