The proposal to scrap the relief for any household which has an individual earning above the £42,745 threshold had been widely criticised for penalising stay at home mothers. However, Chancellor George Osborne has stated that he intends the policy to proceed but may raise the earnings level.
John Deacon, Director and Head of Employee Benefits at Helm Godfrey, believes that this may have unintended consequences for some families.
He said: “Some households will no doubt have to think carefully about whether a pay rise is worth having if it means they lose the benefit as a result of the policy in its current form, but this will depend on the level of pay rise versus the value of the benefit.”
The Prime Minister has stated that the Government will take a look at the way in which the relief was to be cut and consider a new system. Under the proposals families with two wage earners on salaries just below the higher tax band would be unduly advantaged. This is because they would have a sizeable joint income and still receive child benefits.
“We always said we would look at the way it’s implemented and that remains the case, but I don’t want to impinge on the Chancellor’s Budget,” Cameron told House magazine, the in-house publication for MPs.
The move was predicted to save £1 billion a year as 1.2 million families would lose their entitlement to the benefit.
Higher-rate taxpayers have already experienced a cut-back in the amount of tax relief they get from childcare vouchers (CCVs), although the benefit is still worth a significant amount.
Deacon added: “It is hard to say whether there will be an impact on the uptake of CCVs in the benefits space, but certainly you could in particular see so-called ‘cliff-edge’ families looking to take advantage of such benefits if they are not already doing so.”
Julian Foster, Managing Director of Computershare Voucher Services pointed to recent research from the Social Market Foundation which highlighted the rising cost of childcare. The Parent Trap found that families on a higher income are likely to be spending an additional £1,400 per year more on childcare by 2015.
“With this in mind, it’s clear that anything which supports parents in balancing their budgets should be viewed as positive,” said Foster. “Likewise, CCVs still remain a viable and effective way to save money on childcare. Higher rate taxpayers can each save up to £623 per year. For parents, it makes sense to make use of all possible benefits available to them.”
