The new childcare tax credit may be failing to hit its target of helping unemployed parents into work, while bogus claims cause problems for carers. Mary Evans reports
The Childcare Tax Credit has been running for six months, but early years professionals from across the spectrum of providers report evidence of low rates of approval for parents, problems over the rigidity of the rules, and even fraud.
The Inland Revenue is now conducting research into the scale of the problem and childcare leaders expect the Government to take action to prevent parents from making dishonest claims.
The Childcare Tax Credit element of Working Families Tax Credit (WFTC) was introduced to encourage unemployed parents back to work by helping them with their childcare costs. Initially it was allocated in cash, but from the new tax year, starting today, it will be paid through wage packets.
Although this might reduce the temptation to cheat, the scheme is still open to abuse. Parents can claim an annual maximum of 5,460 for the childcare costs of two or more children and up to 3,640 for one child. So far 90,000 claims out of more than one million applications for the credit have been approved.
The Inland Revenue set up a special helpline for childminders to report miscreants only after intense lobbying from the National Childminding Association (NCMA). The NCMA was worried that the new scheme did not plug the loophole people had exploited under the old childcare disregard by keeping the money for childcare and leaving the childminders out of pocket.
NCMA chief executive Gill Haynes says she was alerted to the problems over the childcare tax credit by a welfare researcher in Liverpool who described 'widespread abuse, almost as if there was a systematic scam'.
'Childminders are accepting parents on WFTC as bona fide and signing the forms for them, and either the children don't arrive at all or they come and settle in and after a couple of weeks, when the payment is due, they don't come anymore and the childminder loses out,' says Gill Haynes.
Since raising the issue with her membership, she has received three letters from MPs who have had complaints from childminders in their constituencies about frauds.
'I have spoken to the Inland Revenue and they received more calls to the phone line than expected,' she says. 'They have reported to ministers and are going to conduct some research and follow up people making claims this month. I think they are of the opinion that there is clear evidence there is abuse, and they will act.'
An Inland Revenue spokesman says, 'We are monitoring the situation and if we find anomalies, we will take steps to counter them.'
Gill Haynes stresses that she does not want to overdramatise the problem, but says it must be dealt with or else childminders will create their own informal solutions. 'It could mean that childminders in particular areas will simply say, "We are not going to take anybody on WFTC". The Government intended this to increase the supply of quality care, but it could have the opposite effect because of the actions of a small minority of parents.'
Her findings are echoed by Rosemary Murphy, chief executive of the National Day Nurseries Association, who says, 'There is hard evidence of fiddling. For the first six months it was paid as a lump sum. It really was very remiss of the Government to put temptation in people's way. We think the money should be paid directly to the nursery.'
She says Government officials seemed not to have considered the possibility of fraud. 'They seemed to be completely surprised and taken aback that anybody could do this. They have no system for dealing with it and are now asking nurseries to report people who are fiddling. But our members do not want to be put into that position.'
Rosemary Murphy feels childcare organisations should have been consulted more fully before finalising the details of the scheme. 'When they spoke to the major organisations just before the press launch they were only concerned as to whether their adverts were going to hit the right targets.' She now advises nurseries to insist that parents sign contracts before their children join.
'We are urging nurseries to be more assertive and ask parents to sign a contact committing them to a month or even two months' notice with fees to be paid in lieu of notice. At least the nursery can claim the fees. Some parents have been asking a nursery to keep a place for a month until the tax credit comes through and then failing to start. It can take the nursery another couple of months to fill the place. The losers here are the nurseries and the children, who are missing out on quality childcare.'
Another shortcoming with the childcare tax credit that is gathering evidence is that it is failing to reach a key target: unemployed parents in poorer areas who need help with childcare costs so they can join the labour market. A recent briefing paper by the Day Care Trust found that in poorer parts of the country, registered childcare places were severely limited or non-existent. It called for the establishment of a network of Centres for Children in deprived communities (see Nursery World, 16 March, p10).
Helen Penn, professor of early childhood at the University of East London, says, 'My impression, much of which is personal because my daughter is looking for childcare, is that the provision is not there, particularly in the poorer areas. The tax credit system assumes that the private market will expand and create the places, but it is not a tenable proposition. The Government should make the capital investment in public services and follow the model of most European countries where the state provides the support for parents who want to be able to go out to work.'
Even when places are available few parents seem to have been approved for the tax credit. Margaret Lochrie, chief executive of the Pre-School Learning Alliance, says, 'Research recently carried out by us showed that only 20 per cent of pre-schools had parents who were benefiting from Working Families Tax Credit and in the majority only one parent in the group is benefiting from the new measure.'
It is unclear whether the Government's 12m publicity campaign misfired, leaving parents unclear about exactly who would qualify for the tax credit, or whether they are having difficulties accessing it. Margaret Lochrie thinks further research should be carried out to establish the source of problems so they could be remedied.
Gill Haynes feels the rules for claiming childcare tax credit are inflexible. Claims run for six months and a repeat claim cannot be made within that time.
She cites a case reported by a childminder where a mother had her claim rejected because her husband was on sick pay and the authorities said he could care for the child. He has now returned to work but she can not apply again until the next claim period starts in October.
Rosemary Murphy says nurseries are reporting that parents who have been paying for two or three sessions a week are using the tax credit to pay for one or two more sessions. 'I don't think there is any real evidence it is drawing piles of people into the workforce,' she says. 'There is more to getting a job and rejoining the workforce than just paying for the childcare. There can be problems in transporting the child to and from the nursery, and there is the issue of who looks after the children when they are ill, apart from the challenge of trying to find a job. There needs to be a whole range of support.'