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Social Market Foundation says Government should loan parents £10,000 for the cost of childcare

Parents should be able to access financial support of up to £10,000 from the Government to pay for childcare, which they would then pay back as monthly contributions made through the tax system, a think tank has said today.

The Social Market Foundation's (SMF) report, A Better Beginning, proposes a 'National Childcare Contribution Scheme', which would use the Government's low cost of borrowing to help parents overcome the huge financial burden of childcare.

The scheme would extend the benefits of formal childcare to more children and families, without creating additional costs to the Exchequer.

SMF Director Ian Mulheirn who co-authored the report, said: "Childcare costs impose a huge burden on families for a relatively short period of time. This has a real impact on families' household budgets and can mean that it's simply not viable for some parents to go to work, despite the real benefits to both their earning power and their children's development offered by formal childcare.

"By helping parents spread the cost through manageable monthly contributions, this innovative scheme can help parents do what's best for themselves and their children."

The SMF paper models how a National Childcare Contribution Scheme would work and recommends that the scheme adopt the following features

It suggests all working parents with a child under school-age would be eligible; parents would be given the money up-front by Government through a voucher scheme and would then use a smart card to pay for childcare at a high quality formal childcare provider; the main earner would start paying back the contribution at 6% of their gross income above the income tax personal allowance (£8,105 for 2012-13); parents would stop the monthly payments once they have paid back the amount in full or after 20 years; and an interest rate of 3% above inflation would be applied.

Mulheirn added: "Our model would ensure that support is provided when families need it and they would only pay back when they can afford to."

The SMF's idea has support amongst parents with children under five-years of age.

A YouGov poll of parents with children under five-years-old found that 57% who expressed an opinion thought that the scheme was a good idea. A quarter of parents not currently using childcare and 28% of parents relying on friends or family said they would use the scheme if it were available.

The Social Market Foundation has recommended the new scheme be implemented after a pilot and is presenting the findings of its research to the three main political parties.