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Eliminating tax breaks on childcare vouchers will have knock-on effect on recruitment and retention

Scrapping the tax efficiencies on childcare vouchers will not only harm working parents, but will have a detrimental effect on employers as well, according to the Institute of Payroll Professionals (IPP).

The IPP believes that eliminating tax breaks on childcare vouchers, as the prime minister has suggested, will discourage employers from maintaining the scheme because the cost of administering it is paid for by the savings on National Insurance.

The institute also thinks companies are at risk of losing one of the most popular and sought-after employee benefits and will no longer be able to reap the rewards of using the scheme as a recruitment and retention tool.

Karen Thomson, associate director of policy, research and strategic visibility of the IPP, said: "There are a large number of employers that have invested time and money in planning and implementing salary-sacrifice schemes to help their staff take advantage of the tax savings afforded to them by the Government. And by offering tax relief on childcare vouchers to employees, companies enabled many working mothers to go back to work.
"However, if Gordon Brown's proposals to withdraw tax exemptions are to go ahead, this will cause numerous problems for employers. Some companies may not see the financial value of including the childcare voucher scheme in their employee benefits packages, which will inevitably have an effect on recruitment and retention. One potential situation is the departure of experienced staff due to the high cost of providing childcare."