Childcare subsidies should be repaid in the same way as student loans

[howabout]

(A couple of other threads discussing the economics of working while raising a family. Also in light of the extension of free childcare for working second earners.)

It seems fairly universally accepted that stepping out of the workplace in favour of childcare for any significant length of time has a long term financial consequence. However tax reliefs and subsidised childcare tilt the economic balance even further in favour of those who need childcare to maintain their job. Student fees and loans were introduced as the majority felt graduates disproportionately benefited from their education. Therefore as childcare costs are only "unaffordable" over the short term and not over a working lifetime I propose they should be repaid via the tax system in the same way as student loans.

I am interested in how others feel about this.

Thanks for staying with the discussion I will try and explain more fully.

On your figures this maximum of £243 tax free per person amounts to £2,320 per year for 2 higher rate tax payers incurring sufficient costs by for instance employing a nanny. If like me they spread out having children over 10 years then the benefit is available for 25 years and amounts to £58,000. This no longer looks like a small amount.

In order to benefit at all from childcare vouchers you must first earn enough to pay tax. This excludes anyone not in employment, many in low pay and most in PT work. Within the tax credit system they cannot contribute to costs already funded by tax credits (I explained earlier why I do not consider this a benefit in the same way). If you only pay 20% tax the benefit is halved. If you have fewer children or cannot afford sufficiently expensive childcare then you benefit less.

A 2 teacher family will graduate with £80k+ of student debt and since it is unlikely they will ever repay it they will have an effective marginal tax and NI rate of about 40%. If they both work and have the same childcare set up as the high earning non graduate couple then they could claim a maximum of £29k (20% tax relief). If one stops work or works PT or if they have 3 dc close together or if they divorce then the amount claimed would be a lot less.

Under my proposal childcare benefit would be treated in the same way as student loans. The high earning couple would start repaying immediately (but would likely choose not to claim) and the graduate couple would have it added to their student loan and would never end up repaying.

In the case of the current tax relief scheme the easiest administration would be for the original claimant to repay. Couples could choose the most efficient claim strategy from a tax and repayment perspective.

Any extra free childcare offered to "2 working parent families" could similarly be costed through vouchers. Who is responsible for repayment is more difficult to determine but could be tied in with the mindblowingly complex rules on what constitutes "2 working parent families" .

This would imo go some way to redressing the balance between those with and without student debt earning similar amounts and raising families.

I find it a bit dis-spiriting that the knee jerk reaction of many to my original Op was so negative. This confirms my suspicion that many do not appreciate how regressive the current arrangements can be.

(I have no student debt and if I were in England advising my dd to become a chartered accountant like me then she would enter the profession direct from school and be earning upwards of £60k within 10 years and have no student debt).

• Sorry minor correction

In the 2 FT teacher example above I forgot that since it is salary sacrifice they would also benefit from NI deductions making their childcare voucher benefit closer to £40k.