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TSG99/14

1.1 The Government’s "Action Programme for the Millennium" contains a number of commitments to support both the family and also childcare, and includes an undertaking to honour the taxation commitments which were made by way of joint statement by the two parties in the course of the election campaign. This joint statement on agreed priorities for personal taxation, issued in early June, 1997 gave an undertaking to introduce a £2,000 per year standard rated tax allowance (now worth £9.23 a week) for married people who stay at home to care for children, and also to contribute to the cost of childcare. The Programme in the "Women’s Rights" section reaffirms a commitment to introduce a tax relief, inter alia, for carers of children in the home.

2.1 In his 1998 Budget speech the Minister for Finance gave a commitment to review the possibility of a tax relief on childcare at the standard rate of tax in the context of the 1999 Budget. The Minister made clear that this review would take into account the Reports then awaited from a number of working groups, including the P2000 Working Group on Childcare, and the Commission on the Family and the Household Working Group set up under the previous Government.

3.1 In October 1998 the Department of Finance circulated a paper to the TSG on Tax Relief for Childcare (TSG 98/37). This paper reviewed in some detail the arguments for and against, including the costs of, various possible options for implementing the commitment in the Government’s Programme.

3.2 The costs of certain options for phasing in a standard rate tax relief of £1,000 and £2,000 per family was given as follows

5 years 33 66

10 years 54 108

12 years 62 124

Child Benefit Age 84 168

(The latest figures available indicate that these costs have increased; for example, the cost of the £2,000 allowance for all families is now estimated at £180m).

3.3 The TSG paper also put forward a final option of putting whatever money is available into Child Benefit rather than tax relief. The main argument for this option was that increasing Child Benefit payments benefits all families, regardless of whether they were paying tax or not, and regardless of whether they are in paid employment or not.

3.4 The 1998 TSG paper concluded that the complexity of the issues involved made it very difficult to agree on how best to proceed. The paper recognised, however, that once an allowance is initiated in any form it will be very difficult to resist the pressure to extend or increase it over time.

4.1 In his 1999 Budget Statement the Minister for Finance acknowledged that the Government was aware of the growing wish for a recognition of childcare needs in the tax system and took the opportunity to outline a number of the important and complex issues that the question of a possible childcare tax relief raises. These included the question of equity between parents who stay at home to care for children and those who have to meet additional childcare expenses when they go out to work, and the need for a balanced treatment of those who are in the tax system and those who rely on social welfare benefits, and for finding the right balance between measures to help towards the cost of childcare and measures to improve the supply and quality of childcare facilities to meet the growing demand. The Minister confirmed that the Government had already discussed this area in some detail and proposed to examine these matters further.

4.2 The Minister did also announce certain measures in the 1999 Budget to address the shortage of childcare places in view of the general consensus that already existed on the need to increase supply to meet the growing demand for such services. As a result of these measures childcare facilities made available by employers on a free or subsidised basis are no longer subject to a charge to tax in the hands of employees as a benefit in kind, and capital allowances have been introduced for capital expenditure on childcare facilities which meet the required standards for such facilities as provided for in the Childcare Act, 1991. Both these measures were included in the 1999 Finance Act.

5.1 Following receipt of the Report of the P2000 Expert Working Group on Childcare in February of this year, the Government decided to set up an Interdepartmental Committee on Childcare to evaluate, cost and prioritise the proposals in the Report of the P2000 Expert Working Group on Childcare, and the childcare proposals in the Action Programme for the Millennium, the Report of the Commission on the Family, and the Report of the Forum for Early Childhood Education. The Committee has representatives from all the major Departments involved.

5.2 This Committee was also asked to make recommendations in relation to childcare on the strategy to be adopted by the Government in the forthcoming negotiations on a successor to Partnership 2000, and to report within six months on these issues to the Government.

6.1 The Report of the Committee was recently finalised and has been submitted to Government. A summary of the conclusions of and the recommendations in the Report are set out at Appendix 1. These cover a wide range of issues including

6.3 The Report explains that it was the Committee’s view that the supply side difficulties were the most urgent issues which required to be addressed given the reported shortage in supply The Committee’s specific supply side recommendations, costing some £46.4 million per annum, are summarised at paragraphs 22 - 30 of Appendix 1. The main elements of the package are:-

Equal Opportunities Childcare Programme (D/JELR) £23m

Community based after school services £ 5m

Local Childcare Network initiatives £ 2m

Grants for medium sized (4 - 20 children)

Grants to school management for the provision of after school services £ 5m

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7.1 There has been a growing expectation over the last two years that measures to assist families in meeting their childcare needs and costs - aimed either at increasing the supply of childcare places or at increasing direct support for parents, whether by way of direct payments or tax concessions, or a combination of both - will feature in forthcoming Budgets. These expectations are likely to grow in the run up to the negotiation of a successor to P2000.

7.2 The Government is considering the Report of the Interdepartmental Committee at present. The Group may wish to give its views on the issues arising in this area.

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