Childcare tax breaks benefit the wealthy more than those on low incomes

The new childcare policy will do very little to help the millions of people who have already lost out under benefit cuts, but it will help those with joint incomes of just short of £300,000.

The government has made great fanfare of the fact that new childcare support worth up to £1,200 a year is to be made available to working parents from the autumn of 2015.

Under the plans, parents will be eligible to receive 20 per cent of their yearly childcare costs up to a limit of £6,000 a year.

However the scheme will only apply to families where both parents are in work, with those receiving tax credits and the universal credit, which will be introduced from next month, not eligible.

Meanwhile government cuts to childcare tax credits in 2011 mean that the average award has fallen £570 a year, with some families losing up to £1,560 a year.

But two parents with a joint income of £299,999.98 will be able to claim back up to £1,200 per child under the new policy.

For its part the coalition says that £200 million will be provided to meet 85 per cent of the cost of childcare for poorer parents but only if both parents are in work and they earn more than the personal tax allowance which is due to reach £10,000 by 2015.

However putting this £200 million into some kind of perspective, £2.4 billion was cut from tax credits in 2012, with seventy per cent of the cuts falling on households in the bottom half of the income distribution band.

In October, George Osborne used the Spending Review to announce that:

“we will return the childcare element of the Working Tax Credit to its previous 70% level.”

What that means is that from April 6 close to half a million families earning less than £30,000 per year will lose up to £1,560 per year in tax credits.

According to the Institute for Fiscal Studies (IFS), changes to taxes and benefits for 2012/13 will cost households an average of £160 in 2012/13, rising to £370 a year thereafter.

“Households with children and those in the lower part of the income distribution will feel the biggest impacts as a proportion of income,” the report said.

The new childcare policy will do very little to help the millions of people who have already lost out under benefit cuts, will do very little to help those families where one parent is unable to get full time work, but it will help those with joint incomes of just short of £300,000.

The government hasn’t thought this through. Or maybe it has, and that’s the problem.

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