Childcare vouchers: to scrap or not to scrap?

The Government has just announced the end of childcare vouchers. Employers and voucher providers are up in arms. Currently in the UK there are over 12,000 nurseries which operate at less than 80% capacity; there are thousands of childminders leaving the profession due to lack of demand; and childcare remains one of the worst paid professions.
 
Nevertheless, funding for childcare has been increased generously under the Labour Government and with more people willing and able to return to work, logic would suggest that some of the money would feed its way directly into the childcare sector.

How did we end up in such a mess? I have various interests in the childcare sector. Businesses I am involved in provide thousands of families with nannies across the UK, supply over 2,000 nurseries with their staff, employ close to 400 people running crèches and nurseries in the private and public sector, are very close to the needs of working parents and carers and are partners of many of the UK’s leading employers.

Before we look at vouchers, we need first to consider what constitutes good childcare. At the industry expert level there seems to be some consensus. For children in their early years – certainly up to 18 months – consistency of care is the most important factor. In other words childminders, nannies and parents are all very good solutions. But group settings – in other words nurseries – are not as helpful to a child’s early emotional development. It’s a conclusion that flies in the face of the Government’s own childcare funding strategy.

Interestingly, nannying, the one part of the childcare market left untouched by the Government is the very sector that has done best under it. Is there a lesson in there somewhere? When Labour came to power there were 100,000 nannies working and the average cost of employing a nanny was £26,000 per annum. There are now 160,000 nannies and the average cost has come down to £23,000. Eastern Europe, flexible working, and sites like www.nannyshare.co.uk have been the drivers.

So what about vouchers? I believe vouchers have broadly worked. There are now close to 400,000 working parents who use them, most large employers have schemes in place, the operators generally provide a good level of service and the tax breaks available make some difference to a good number of parents.  But what an inefficient way to run a system! At the last count there were 24 different childcare voucher providers out there which suggests lots of people have made lots of money out of running schemes. Incidentally, vouchers remain unloved by the nurseries/childminders/holiday clubs that process them, further supporting the allegation that it’s an expensive way of providing a benefit.

Should there be an easier way for employers to support working parents and carers? I think the answer is probably yes. The counter arguments go as follows: If it makes economic sense for an employer to support its working mothers it will do so irrespective of any Government help. It’s worth bearing that in mind when guessing what might drive Westminster decision-making. Another argument against vouchers is that if parents providing more hands on childcare in the early months is good then anything that discriminates in favour of working mothers is wrong.

The main argument for vouchers is that we need to retain talented and committed employees in the workforce. If parents are not financially encouraged to remain employed we will lose a fantastic resource. It’s true that today it is far easier to combine work and family in a way it never was before. The typical mother – something like 80% of the total – actually would like to combine work and family. That’s normal. Exactly how much work and how much family can vary week to week depending on how good, bad and interesting your children and your job are at any time! Nevertheless, it’s still not so easy to combine work and family that a little bit of employer help – financial or otherwise – cannot make the world of difference.

And while we debate about vouchers, family allowance and child benefit have remained untouched and seems to work very well for about 99% of families. The route to apply for them is well known; the administration of them is successful; and families benefit in a very direct financial way.

A simple and radical plan to help families afford childcare could therefore be to scrap vouchers. The additional resources could then be used to give every family a bit more in their family allowance.  The problem with that is that you still need to identify and help the very poorest families. I don’t think our civil service is currently up to that.  The other thing that Government could do quite easily would be to ease up on what they classify as benefits in kind and enable, for example, employers to give employees up to £500 a year on care support. That would release a massive wall of corporate money to support employees. It would also be an easy way to start addressing the 20% of employees who also have eldercare/dependent care needs. Payroll departments would do the work – so there would be no administrative cost. Investment banks might save money on their expensive programmes and in-house nurseries, but just as importantly the ‘Tescos’ of this world could also provide some targeted care help to their hundreds of thousands of store workers.

I am convinced that the future must be about supporting parents and letting them decide what is right for them and their families. Putting money directly into the hands of all parents is the best and most direct way of delivering funding into the childcare industry. And there must be a much easier way of allowing companies to support their working parents which would bridge any funding gap.

Ben Black is Managing Director of My Family Care, a Corporate Employee Benefits Company aimed at helping firms engage with their workforce, especially in terms of their childcare commitments.  My Family Care's services include emergency childcare, one to one support for employees returning to work after children and voucher packages.
What do you think?