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Warning over calls to scrap workplace childcare vouchers

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The Government must ensure working parents will be better off if it replaces childcare vouchers with free childcare services, a benefits expert has warned.

Iain McMath, managing director of Sodexo benefits and rewards services, said employees would miss out on support and information provided by HR managers if the Government administered cash-back schemes or tax-breaks directly to parents rather than through employers.

McMath’s comments came in response to a report published today by think tank IPPR, which called for the Government to introduce universally available free childcare in place of cash benefits or tax free vouchers.

It argues that improving mothers’ access to childcare would pay dividends for families' and the Government’s finances by increasing tax revenues and employee earnings.

IPPR claimed a single year of higher employment for mothers with children under five could mean up to £1.45 billion in fiscal gains.

IPPR associate director Dalia Ben-Galim said the affordability of childcare was a barrier to work for 43% of parents with children aged between three and four-years-old, rising to 50% among parents with children under two.

“Universal childcare is the solution that will make Britain better off and help families deal with the squeeze on incomes and rising care needs as a result of the aging population that means both parents and grandparents are increasingly called upon to provide care rather than remain in employment,” he said.

“Although any initiative to tackle the high costs of childcare for parents is welcome, there are real concerns that the Government’s current proposals – a £750 million annual package for extending tax-free childcare – may not lead to more affordable childcare.

“Analysis shows that the scheme is skewed towards benefitting higher income families, and that childcare costs will probably continue to outpace the Government’s tax relief proposals in the coming years.”

McMath said a universal system would place an onus on parents “to be aware of their rights and entitlements in this area without the support and information that HR departments have previously provided”.

“Employers have been playing a key role in implementing and promoting the current childcare voucher scheme to their staff, with many using it as a cornerstone of their work-life balance initiatives,” he continued. 

“With the current cost of childcare still on the rise, it is hard to imagine a Government funded system of universal childcare that will save families up to £1,866 per year, the amount they can currently save using vouchers.

“While a move towards universally funded childcare isn’t necessarily a mistake, the Government does need to ensure that working parents will actually be better off when they’re not receiving individual financial support directly from the Government and their employers.”

The Government is currently reviewing responses to a consultation on its tax-free childcare scheme, which it plans to phase-in from autumn 2015.