A helping hand with childcare: options to make your child and wallet happy

https://www.theguardian.com/money/2017/mar/12/childcare-options-government-lessen-cost

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News that the UK ranks highly among the most expensive countries in the developed world for childcare will come as little surprise to those families spending an average of £6,000 a year on a single part-time nursery space.

In London the situation is even more bleak, with the Family and Childcare Trust putting the cost of a part-time nursery place at more than £7,500. The Institute of Economic Affairs, meanwhile, says many families spend a third of their net income on childcare.

Ellen Broome from the Family and Childcare Trust says: “It is a disgrace that so many parents are effectively shut out of the workplace by crippling childcare costs.”

However, it seems there could be some light at the end of the tunnel for cash-strapped families, with the launch of a number of new schemes by the government this year. But will they work for parents? Here we look at the options that will be available.

Tax-Free Childcare

As confirmed in last week’s budget, the government is rolling out the Tax-Free Childcare scheme from next month. It will run in addition to, and eventually replace, the current Childcare Voucher scheme.

The state will contribute 20p for every 80p that parents spend on childcare, with a maximum contribution of £2,000 a year per child. Parents who work more than 16 hours a week and who earn more than £100 a week but less than £100,000 a year are eligible (they can have a combined income in excess of £100,000). Parents apply by opening an online account, which they pay into, and which will then be topped up by the government to cover the cost of childcare with a registered provider.

Childcare Vouchers

Under the existing Childcare Voucher scheme offered by many workplaces, parents can pay for childcare via salary sacrifice. Giving £1,000 of salary pre-tax gives parents £1,000 of care vouchers, saving them money as they don’t have to pay tax or national insurance on the amount put aside. Basic rate taxpayers can claim £930 a year per parent, and higher rate ones £630.

Participants will now need to choose between this scheme and the new Tax-Free Childcare system. You can sign up for the existing scheme until April 2018, and make payments as long as your employer continues to offer it.

So which is best?

This depends how much a parent earns, how much is spent on qualifying childcare, and how old the children are, according to Jonathan Watts-Lay from Wealth at Work. The new scheme will only be available to parents with children up to the age of 12, whereas the old system is available up to age 15.

“There will be no national insurance savings under the new system, therefore employed parents with lower childcare costs could be worse off. Also, both parents must be working,” says Watts-Lay.

Generally, Tax-Free Childcare makes sense if a parent has two or more children as it offers savings per child per year. Childcare Vouchers are likely to be best if one or more parent earns more than £100,000 or if one or more parent doesn’t work at all.

30 ‘free’ hours

Children aged three and four (and some aged two) are entitled to 15 hours of free early education a week, and from September this will double to 30 hours a week. The hours must be spread over at least three days a week for at least 38 weeks a year. But while the hours will double, not everyone will get the extended entitlement – to qualify, parents must work at least 16 hours a week and earn less than £100,000 a year.

Parents will be able to access funding through childminders, pre-schools and out-of-school providers. However, many nurseries may choose not to offer the hours because the rate at which they are reimbursed by their local authority often does not cover the actual cost of the care they provide. “The 30 free hours will be very difficult for parents to actually access – and the Tax-Free Childcare scheme only addresses a fraction of the cost of childcare,” says Rachel Carrell from London nanny-share website Korukids.co.uk.

The nanny-share

About a third of the cost of a nanny can be saved by signing up to a nanny-share with a friend or local family. In London, the typical cost for a nanny share is £1,800-£2,100 a month per family. That is based on employing a well-qualified nanny to work 10 hours a day, five days a week, including all taxes and national insurance (though not the potential requirement to pay into their pension).

Outside London costs could be lower, starting from around £1,600 a month per family, but equally they could be more because of demand. While many nurseries would be cheaper than this, the cost-saving starts to make sense if you have more than one child. A nanny charges by the hour and the cost does not go up (or only rises a little) for additional children.

The Tax-Free Childcare scheme only addresses a fraction of the cost of childcare

The au pair

Potenially more affordable than other childcare options, parents need to provide an au pair with free food, lodging and a minimum of £75 a week pocket money. For this they can expect 25 hours a week in help and up to two evenings of babysitting, according to the British Au Pair Agencies Association. While an au pair may sound appealing (and cheap), they may have some childcare experience and qualifications but they are not a nanny. Instead they come to the UK to experience a new culture and to learn a foreign language.

Shared parental leave

Couples can now split the first year off with their baby. Mothers can take up to 52 weeks in total, but can share up to 50 of these weeks with their partner (the first two weeks following birth are mandatory). Both partners are paid by their own employers when they receive Shared Parental Leave pay, currently £139.58 a week or 90% of your average weekly earnings, whichever is lower, for 37 weeks.

A self-employed parent will not be eligible, but if they satisfy an earnings test their employed partner may be able to access Shared Parental Leave and pay. If both are self-employed, neither is entitled.

Talk to your employer

A spokesman for consumer group Which? says parents can ask for part-time or flexible hours and their employer has a duty to consider (although no obligation to fulfil) the request. Compressed hours, flexi-time and job-sharing are among the options, but none are an employee’s right.

“The right to request flexible working was extended to all employees in April 2014 and is designed to give employers confidence in responding positively to requests and changing workplaces cultures for the better,” says Stewart Gee from employment relations specialist Acas.

Claim help

Parents should ensure they are claiming all the benefits to which they are entitled. Child benefit of £20.70 for the eldest child and £13.70 for subsequent children is available to parents of those under 16, providing neither has an income of £50,000 or more. Child Tax Credits depend on childcare costs, the number of children, hours worked and income. Single parents with a child under the age of five may be able to claim income support.

SHARING CAN BE THE ANSWER FOR PARENTS

Jacqueline Milward, 36, and her husband Simon, 40, save £800 a year by having a nanny-share for their children Oscar (5) and Annabelle (18 months).

“When we only had Oscar to think about we paid for him to go to nursery locally,” says Jacqueline, who works as a manager in a sustainability thinktank. The family live in Ladywell in south-east London. “With the free 15- hour allowance this cost us about £100 a week for a full-time place from 8am-4pm for five days a week. We then paid an additional £25 a day for a childminder to pick him up from nursery and care for him until 6pm.”

When Annabelle arrived, however, costs started to mount. “We found ourselves paying an additional £240 a week for a childminder to look after Annabelle for 10 hours a day, four days a week,” Jacqueline says.

The couple found a local family interested in nanny-share via website Korukids, and the toddler is now looked after for 10 hours a day, four days a week.

“Oscar is in reception class, but our nanny also looks after him after school – along with two other children from another family who live across the road. This costs us around £345 a week.”

The cost of having a childminder caring for Annabelle, in addition to getting her to pick up Oscar from school during term-time, would have been about the same. “However, school holidays would have been a complete nightmare as childminders charge a fee of between £60 and £80 for each child per day.”