Changes to the tax credit system coming into force next month are designed to make it easier for more working parents to claim help with childcare costs. However, on current trends, childcare providers should not bank on an explosion in demand for childcare, with parents flocking to take advantage of this.
Launching a campaign to encourage families to claim the 2.7 billion available this year from the new Working Tax Credit and Child Tax Credit, Chancellor Gordon Brown described the changes as a 'revolution' in the tax and benefits system and said six million families would be eligible for support.
But according to the latest Inland Revenue figures, there were only 1.3 million families receiving Working Families Tax Credit (WFTC) in August 2002, with the average award amounting to 85.83 a week.
Just 13 per cent of these claimants - 175,000 families - were claiming support with childcare costs, with an average award of 40.69 a week, although the maximum available was 94.50 a week for one child and 140 a week for two or more children (see box).
Rosemary Murphy, chief executive of the National Day Nurseries Association, says, 'It is a nonsense to have so few people claiming it. The whole idea is to get people back into employment, but I am sure that a large number of the people receiving it are already in employment.'
She says she thinks claimants may have been deterred by the complex paperwork, adding, 'at least the new system is going to be simpler.'
Parents have to work at least 16 hours a week to claim the childcare element. Some early years providers believe this rule will continue to limit take-up rates, as many part-time jobs are for 15 hours or less a week.
Ms Murphy adds, 'What worries me is how Neighbourhood Nurseries are going to survive. I do not think these facilities are going to be filled by the children of people returning to work but by people who are already in work.'
ADDRESSING COMPLAINTS.
Several of the key changes to the new scheme have been introduced in response to complaints from the childcare provider organisations.
Under the old system, awards ran for six months and applicants who were rejected could not re-apply until the new claim period started, which was thought to have deterred claimants.
Now, awards will run for the tax year and people will be able to join or apply to be uprated if their circumstances change at any point during the year.
To encourage people to increase their earnings, pay rises of up to 2,500 will be ignored, and only a rise of above that sum could trigger a cut in tax credit. Running the scheme across 12 months gives the Inland Revenue time to check claims.
Members of the National Childminding Association lodged 600 complaints with the Inland Revenue. Many of these centred on the rule that the childcare provider had to countersign the claim form. Parents enrolled their children, completed the paperwork and then never took up places, leaving childcarers with unexpected vacancies and out of pocket.
Fraud was clearly the motive in some cases, but Rosemary Murphy believes many simply couldn't pay all their bills. 'We are introducing new people to the workforce and they are having to earmark money for childcare from their salaries and are finding it difficult. What do you choose, if the car needs a new exhaust or the children need new shoes? Nurseries have been ending up as debt counsellors.
'We advise members to take a deposit and if they are owed money, to go to the small claims courts. We have a member in Durham who has been left with arrears of 6,000 and the mother left the country to live in Ireland.'
FALSE CLAIMS.
From April, a parent will only need a provider's registration number to claim. Gill Haynes, chief executive of the National Childminding Association, says, 'The main difference now is that it is quite clear in the guidance notes that the authenticity of the claim is the responsibility of the parent and if a claim is made falsely, they will be liable to penalties. The Inland Revenue is taking the issue of compliance very seriously. It is their intention in the first year to check every claim of the childcare element of the next tax credit.'
This is worth up to 70p in tax credit for every 1 a week spent on approved childcare, up to a limit of 135 a week for one child and up to 200 a week for two or more children. But both Gill Haynes and Rosemary Murphy would like to see the support for the poorest families extended to 100 per cent.
Gill Haynes says, 'Paying 100 per cent of eligible childcare costs to the lowest-income households would empower parents to return to work and ensure that childcare providers do not end up subsidising the costs of the gap between the real costs of the childcare and these parents' ability to pay.
'Some parents find it very difficult indeed to raise that 30 per cent. This artificially lowers the hourly rates that childminders can charge.'
Rosemary Murphy feels that more needs to be done if childcarers are really to benefit from the new credits. She wants to see the money paid directly to the provider through a voucher scheme, in the same way as housing benefit goes straight to the landlord.
'The Treasury says that parents must not be stigmatised and must have freedom of choice. I do not think any parent feels stigmatised because they are claiming nursery education grant for their three-and four-year-olds, and they certainly have freedom of choice,' she says.
WFTC: FACTS AND FIGURES.
The Inland Revenue conducts quarterly surveys of the tax credits, and the latest, carried out in August 2002, found:
* 1.35 million families receiving WFTC, up one per cent on the previous quarter and 6.6 per cent over 12 months.
* Only 13 per cent of families (175,000) were claiming support with childcare costs. The average award was 40.69 a week. Nearly 90 per cent (157,000) were lone-parent families.
* 9,800 families received help with childcare costs of 10 to 20 a week, while a similar number had bills of more than 140 a week.
* 53,800 lone-parent families used registered childminders only, 53,400 of them used nurseries only and 29,800 used another form of approved childcare.
* Among the 18,000 claimant couples, 5,500 families used registered childminders, while 8,400 used nurseries only.