Wednesday, 11 November 2009

"Up to" of the week

From the BBC:

More than 300,000 families use them to save up to £2,400 a year through tax relief on the cost of childcare...

It involves parents sacrificing up to £243 of their salary - before tax and national insurance are taken off - in exchange for electronic "vouchers" which are then paid to Ofsted-registered child carers, from au pairs to nurseries. The Treasury wants to phase out this tax break, which is equivalent to a 31% saving on the first £243 spent on childcare costs each month for basic rate taxpayers, or 51% for those paying the higher rate.

So that really was lazy journalism - all the facts are there in the second paragraph, so you don't need to be a maths genius to work out that the absolute maximum tax/Employee's NI saving is 51% x £243 x 12 = £1,487 a year, and for a basic rate taxpayer it's £904, so saying "up to £2,400 a year" is either downright laziness or deliberately misleading.

The rest of the article is the usually blah, whine, moan special pleading - you must realise that a whole industry has grown up around administering the vouchers, which is exactly what was intended. Wouldn't it be far simpler to just stick an extra £20 a week on the cash-equivalent "nursery vouchers" (that are officially called something else, of course) and have done with it?


AntiCitizenOne said...

How about, No tax on incomes and no child benefit?

oh and no "Kidnap your own child" replies of pay-up of the child gets hurt please.

Mark Wadsworth said...

AC1, I knew you'd say that.

From the point of view of everybody not getting the vouchers, this is an excellent deal...

Without the vouchers, fewer parent would work and the total tax loss (on the working parents' wages plus profits they generate plus the income of the private nursery) would be far greater than the nominal cost of the vouchers.

Ergo, for a given total tax burden, people without children at nursery pay less tax because the vouchers/subsidies!

Plus, nursery vouchers dovetails nicely with education vouchers.

AntiCitizenOne said...

Perhaps couples who can afford one of them not to work, shouldn't be incentivised to work?

I don't agree with vouchers either. Loans against future Citizens Dividend is far better.