· 8 min read · Features

The UK childcare system: fair to mothers and fathers?


In recent months, childcare issues have risen up both the corporate and political agendas. Speaking in January, at an event organised by thinktank Demos, deputy prime minister Nick Clegg slammed the childcare system as “Edwardian” in nature and promised to introduce a “properly flexible” system of shared parental leave by 2015.

Clegg added that his aim was reforms that were sustainable and affordable for employers, while at the same time overhauling an outmoded system that places the childcare burden on mothers while discouraging fathers from taking a central role in raising their children.

Research from another thinktank, the Fatherhood Institute, echoes Clegg's point that the prevailing system frequently dissuades fathers from playing a more active role in looking after their children. It found flexible working options are less available in male-dominated settings and that fewer men make requests to work flexibly, have their requests granted or are successful when taking their cases to tribunals. Studies also suggest that employees who don't take paternity leave, or take less, do so for financial reasons and that use of unpaid parental leave by fathers is very low.

Among the reforms being considered by the Government is a proposal that fathers should be allowed to step in after six weeks when many mothers return to work, because at that point the more generous maternity pay - 90% of the mother's average weekly earnings - is replaced by the statutory pay of £125 a week. Another change under consideration is allowing parents to take leave in chunks, rather than as a lengthy stretch, again increasing flexibility for parents, if not for companies...

Yet while these points are being debated, new legislation is already upon us. HMRC changes to employer-supported childcare come into effect as of 6 April. For anyone joining their employer's scheme from that date onwards, the amount of tax they can save will be limited to the equivalent of the basic rate.

"On the face of it, the new system seems fairer to employees by evening out the amount of tax savings available across all employees, regardless of their personal tax rate," says Mark Collins, head of the employer consulting group at accountants Baker Tilly. "However, we could ask, will there ever be a fair system? The basic earnings assessment which determines the exempt childcare that the employee may receive only takes into account income and benefits that are guaranteed, so those employees whose income is based heavily upon overtime or performance-related bonuses could get a better deal than those who receive a standard annual salary.

"From an employer's perspective, staff joining an employer-supported childcare scheme after 6 April amount to yet more administration costs in carrying out a basic earnings assessment. Combine the additional administration costs with the likely fall-off in participating employees and it remains to be seen whether employers will consider these schemes as cost-efficient to run in the long term."

Clegg's 'parenting speech', if viewed in isolation, represents a huge step forward for parents across the country, but the intentions of Government appear to be contradictory - supporting parents in achieving work-life balance by allowing parents to share paid parental leave and encouraging flexible working, yet at the same time removing child benefit where one parent pays higher rate tax and reducing tax exemptions on childcare voucher programmes for the same higher rate tax payers. It may seem - particularly to those who are just tipping into the higher rate tax bracket - that the Government is giving with one hand and taking away with the other.

"A similar concern over the proposals being a double-edged sword surely exists for employers," says Rachel Brown, senior flexible benefits consultant at Towers Watson. "While employees may be more motivated by their newfound flexibility and retention may increase, an employer's main concern must be the practicality of implementing the proposals. Against a backdrop of changes to the Government-backed childcare voucher and cycle-to-work schemes (see feature, page 43), resulting in increased admin for HR departments, employers are now faced with tracking parental leave, sharing information with other employers - for the partner of the employee - and the immediate impact that increased entitlement to flexible working would have on productivity," she adds.

Many employers face the prospect of implementing or tightening up benefit management systems to cope with the tax changes to childcare vouchers and with a view to future developments. As has been discussed previously in HR magazine, some employees may look to 'reduce' their taxable income by increasing pension contributions in order to take themselves out of the higher tax bracket and thereby avoid forthcoming child benefit and childcare voucher cuts.

While this would work for a relatively small group of employees earning just above the higher tax bracket, Brown wonders whether the concept could be extended to other salary sacrifice arrangements to enable more employees to avoid the cuts. Sacrificing greater proportion of salary by selecting a range of non-taxable benefits within a flex plan (eg additional pension contributions, childcare vouchers, cycle to work, health assessment, annual leave etc) would benefit those earning considerably more than tax break, leaving them financially better off.

"Employers should be advising employees who are parents to assess how the changes will affect them and whether they need to review how they make savings on childcare," says Computershare Voucher Services MD, Julian Foster. "Basic rate taxpayers will not see their savings through childcare vouchers reduced, although they may find themselves affected by other changes. For example, some parents using child tax credits to pay for childcare may find they are no longer entitled to claim as much and it could be more viable for them to join their employer's childcare voucher scheme."

Foster makes the further point that the rise in NIC this month will benefit all employers who run a scheme and employees in a scheme, or those that join before 6 April. Employers will benefit from this increase by saving an additional £29 per parent, taking total savings for the employer to £402 for every parent that is a member of the scheme by 6 April. After this date, the employer's NIC savings for higher and additional rate tax payers will be reduced - they will be unable to claim the maximum voucher value - resulting in potential employer losses of £197 per higher or £241 per additional rate employee. The 1% rise in NIC will also result in parents taking home nearly £30 extra in NIC savings, regardless of whether they are basic, higher or additional tax rate payers, as long as they have joined a childcare voucher scheme by 6 April.

But back to the employer's perspective: just how flexible will organisations have to be in future? Banking group Citi has been offering flexible work arrangements for many staff over the past decade and its flexible policy is open to applications from all employees, both men and women. Xanic Jones, EMEA diversity specialist at Citi, concedes there are "challenges" with enabling flexibility in some roles and business areas, but these are outweighed by the positives, she argues. "Citi has found flex work to have been a major contributor to the retention of talented staff and to employee engagement," she says. "Our approach to flexibility helps build Citi a reputation for being a family-friendly employer that attracts talent."

One option mooted by Clegg is to allow parents to share the overall leave allowance, both the paid and unpaid, between them in either one big block or in lots of chunks. This means that there is a possibility employers will have to plan for employees taking maternity leave in bite-sized chunks. Instead of a solid block, there may be three blocks of eight weeks, in between which the employee returns to work for the equivalent time. "How are employers going to deal with this type of upheaval?" wonders Brenda Msi-Manzini, associate in City law firm Lawrence Graham's employment and pensions group. "How will benefits, including pensions, be dealt with when the employee enters an unpaid period, or will the entire leave period become paid?"

Another Clegg suggestion is to allow third parties such as grandparents and close family friends to take leave as well. It is understandable that grandparents may be heavily involved in a grandchild's upbringing, but close family friends? Judging who is a 'close family friend' is hardly a task for which employers are well equipped and may throw up many difficulties.

Work/life balance research conducted by Caroline Gatrell, senior lecturer at Lancaster University Management School, underlines the fact that fathers are increasingly keen to spend time with their children. In her view, there is potential for a culture clash between employers and staff as dads push to be allowed their full entitlement to paternity leave. "When dads have their first child, it is more stressful than when they have their second one," she says. "So giving flexibility to new dads may be a good thing for employers to do."

The facts

  • Fathers are the sole or main earner in almost three out of five two-parent households containing a five-year-old.
  • A substantial number of fathers are now full- or part-time 'home dads'. For example, 21% of fathers of under-fives are solely responsible for childcare at some point during the working week; 43% of fathers of school-aged children provide care before/after school.
  • More new fathers are adapting their working lives in order to care for infants: 31% work flexitime; 29% occasionally work from home; 6% use a compressed working week; 4% work part-time; 8% temporarily reduce their hours.
  • Fathers in two-parent families do 25% of their family's childcare during the week and 33% at weekends - more where they and mum both work full-time.
  • Many men who work full-time are not happy with their work-life balance: 82% would like to spend more time with their family; 69% say the demands of their job interfere with family life; 29% say the demands of family life interfere with work.
  • 84% of dads (and 77% of men) say it should be as easy for men to take time off for caring responsibilities as it is for women.
  • 91% of employed UK fathers take some form of leave after childbirth; 50% of these take the statutory maximum (10 working days), 31% take less and 19% take more.
  • 69% of fathers who take paternity leave say it improved the quality of family life.

Case study - BT

BT is a prominent member of the Employers 4 Fathers group and over the past year has been exploring ways it can better support fathers of young children. Around 75% of the telecoms company's 95,000-strong workforce is male.

When BT began to look into the problems that affect the separated fathers it employs, it found that there was little support on offer. BT approached the Fatherhood Institute for guidance. This led to BT embarking on a pilot for Staying Connected, a scheme that has been run by forward-thinking Australian organisations to address the myriad problems faced by separated fathers.

"In Australia - where Staying Connected originated - it has delivered dramatic results in improved health, confidence and work performance for men who are struggling after separation from their families," says BT director of people and policy, Caroline Waters, who gave the go-ahead for the pilot last summer. "We are the first UK company to pilot this with our people."

The half-day workplace programme, run by Fatherhood Institute facilitators, aims to help fathers deal with separation and provides them with useful information on where to go for help, how to communicate more effectively with the mother of their children and offers practical tips on how to stay connected with their offspring.

The company advertised the pilot on its intranet, BT Today, and invited interested fathers to make contact.

Two sessions were held, in Birmingham and London, to give employees from across the UK reasonable access to a venue. Some 16 fathers in all, from senior managers to engineers of all ages, attended. Each had the permission and support of his line manager to be there during a working day.

"The attendees were able to talk about problems in front of their peers, which in conjunction with the course content, helped them to open up," says BT senior business manager, Jeff Rose, who helped organise the pilot scheme. "Most male psyches are like closed books, so it was great for them to see that there is light at the end of the tunnel."

According to Rose, the course helped fathers manage a traumatic experience as they were going through it - separation can be acrimonious - and, in its aftermath, group members support each other, regardless of rank, role or responsibility and perhaps get to feel more enthusiastic about their work.

"If I had been on this course 12 months ago, I wouldn't have had a breakdown and would have been a lot better prepared for separation," said one participant. Others variously described the programme as providing "a great boost to my confidence", having a "therapeutic effect" and as being an "invaluable experience".

The aim is to make Staying Connected available to a wider BT audience as part of its portfolio of family-friendly policies and practices. Enhanced staff loyalty and motivation, savings on recruitment costs, reduced staff turnover and absenteeism and attracting and retaining a talented workforce are among the portfolio's outcomes to date and it is hoped that Staying Connected will eventually bear similar fruit.

Undoubtedly, observes Waters, increased goodwill and a more flexible attitude from staff mean better customer service - as well as in turn translating into bottom line benefits.