The scheme would be run in a similar way to student loans and all working parents where the main earner is on £12,000 or more with children under school-age would be eligible.
The SMF sets out how the National Childcare Contribution Scheme (NCCS) would work in its report A Better Beginning.
The key features would be:
- parents would be given a maximum of £10,000 upfront by the Government through a voucher scheme and use a smart card to pay for childcare at a high quality registered provider;
- the main earner would be responsible for paying back the repayments at 6 per cent of their gross income above the income-tax personal allowance (£8,105 for 2012-13);
- an interest rate of 3 per cent above inflation applied to the amount drawn down by parents;
- maximum contribution period: 20 years, after which any outstanding amount owed is written off;
- payments would be collected by an agency run on similar lines to the Student Loans Company;
- The scheme is offered on a per family basis, not per child.
Co-author of the report SMF director Ian Mulheirn said, ‘Childcare costs impose a huge burden on families for a relatively short period of time.
‘This has a real impact on families’ household budgets and can mean that it’s simply not viable for some parents to go to work, despite the real benefits to both their earning power and their children’s development offered by formal childcare.’
The SMF carried out a poll with YouGov of 502 parents with a child under five, which found that more than a quarter of parents would use the scheme if it were available.
Ian Mulheirn added, ‘The high cost of formal childcare effectively locks thousands of parents out of work each year and costs are set to continue to rise.
'This is bad for families and bad for the economy, but in the context of tight public finances more public spending on childcare is simply unrealistic in the next few years.
'Our scheme offers a viable, practical and fair alternative, and is a fantastic example of how Government can help families in tough times without incurring additional spending commitments.’
The National Day Nurseries Association said the report was an important contribution to the debate on how to help parents pay for childcare and offered a creative approach to providing support for parents at a time when their childcare costs were highest.
But they warned that the Government must not look to parents to replace the investment from public funding for high-quality childcare.
Claire Schofield, NDNA’s director of policy, said, ‘We’re not convinced a loans system with quite a high rate of interest will help families long-term. We would have concerns that it risks fuelling household debt.’
Childcare payments for a middle-income family in the NCCS
The report gives the example of a family needing to find an extra £50 a week to pay for childcare, on top of the support they receive through tax credits, to pay for a full-time childcare place.
These parents would need to borrow £7,800 over three years when their child is between one- and four-years-old.
Both parents work with the main earner on £20,000 a year and the second parent on £10,000 a year.
Currently their childcare payments would be equivalent to £8.6 per cent of their gross household income.
Under the scheme, the family would reduce their childcare costs to around £14 a week by the end of year three, helping to spread the three year cost of £7,800 over 11 years. This would constitute 2.4 per cent of gross household income a year.
- Read co-author of the report Ryan Shorthouse's article about how the scheme would work.
