Child benefit cuts and all that

Don't worry, I'm not going to jump the bandwagon and repeat the arguments made in the many excellent posts around bloglands. As many have very elaborately explained, the suggested child benefit cut is incredibly unfair. I don't want to linger on this, it's been said much better than I ever could.

What I would like to add to the discussion is a suggestion to look at alternative ways of making the tax and benefit system fairer. You know, it wouldn't hurt to get some inspiration from other countries that operate a fairer society, with less inequality and more well-being, and maybe reform the tax and benefit system properly, rather than try and scrape a billion here and there.

So here are some suggestions:
First of all, the main issue in this country is the significant income gap. There are many on very low incomes and some on very high incomes, a few on middle incomes. This makes work unattractive if all that's within your reach is a low paid job where you're not significantly better off than on benefits.
Secondly, tax credits are paid back at the moment, and there are many of them, making it rather confusing.
So how about a system that abolishes tax credits in favour of tax allowances, while introducing more progressive taxation?

By this I mean a much more graded taxation system where incomes say over 50k are taxed at a higher rate, and incomes over say 75k at yet a higher rate and so on. Raise minimum wage to a living wage while you're at it so that work always pays.
Then, to make things fair and value parents who stay at home to raise children, create a family unit tax free allowance - each adult in the family has a tax allowance, as has each child. This is added to the tax code, so that a single income family is supported through a higher tax free allowance, and a family with more children has more of a tax free allowance than one with just one child.

Above all, this would make the tax system based on the family unit. It should apply to anyone in a family unit, married or not, and would as a nice side effect help reduce the incident of people claiming benefits as single parents when they are not actually single parents (single parents are often better than as a family unit BECAUSE the tax free allowance of the parent who isn't working can't be transferred to the working parent, thus inviting benefit "cheats" - they're not cheats in my view though, playing the system in my view is fair enough if the system is rubbish and lets you play with it).

So say we have a family of two parents and 3 children, one parent works. The working parent's tax free allowance could be £5000 for the working parent, plus £4000 for the non working parent, plus £3000 for each child - a total tax free allowance for this family of 18000. The income above this tax free allowance could be taxed much more progressively, especially as it goes above a certain amount. I don't get why the tax system has to be so streamlined with just 3 tax rates, why not have 5 or 7?

In a system like this, child benefit would be built into the tax free allowance, and so would tax credits. So we could get rid of them.
Add some London/south-east/Edinburgh weighting and Bob's your uncle.

Maybe add some child care support for cases where both parents work, to encourage parents into work if that's your policy. In some places in Germany you get a certain amount of child care costs reimbursed per hour you work, which makes childcare affordable. No need to mess with tax credits, you just go to the Youth Services, show your work contract and get childcare vouchers which cover around 80% of the actual cost. You could link this to family income (i.e. if you're on a high income, you get less of your childcare paid) to make it fairer.

The big elephant in the room remains unfair salaries, but that'll take a generation at least to tackle and I'll leave my musings on this for another post.

Childcare vouchers: keep them or lose them?

Childcare is giving me sleepless day, er nights. Once again. This time it's nothing to do with me or Cubling, well, at least not directly, but the issue is all the more important.

The Labour government, in an attempt to encourage mums to work (and I won't go into the pros and cons of that, but check out Being a Mummy for some useful insights), introduced tax credits and childcare vouchers to ease the burden of childcare. There's also some half measure of free childcare which is rather useless and doesn't really ease the financial cost of having kids while also working.

Now, the government is proposing to phase out childcare vouchers. I take issue with this. While I understand the spirit of it, I still don't think it's a good idea as the proposal stands. Here's the problem: There is actually a significant gap in support for childcare costs. In the case of a two parent family, if one partner works and the other is in training or education that does not qualify for Educational Maintenance Allowance, the couple cannot claim for working parent tax credits. Both parents have to be in work to claim working parents tax credits. I am in such a situation, unable to claim the childcare element of working parents tax credits because my other half is in postgraduate education. So while only I can only take advantage of the tax relief through childcare vouchers (if two parents are employed, the advantage is doubled to 100 pounds a month), it is still so much better than nothing (i.e. the amount I can claim through the childcare element of working parentstax credit).

Childcare vouchers are therefore the only way of getting some tax relief on the soaring cost of childcare, childcare which in this country is heavily privatised. Just compare the cost: in some countries childcare is free, in others it may put you down between 100 and 200 quid. Here it's at least 600 full time. What do you do if you have to children under 5? Maybe there are people out there with an income that would leave some spare, but surely this is rare.

Granted, most training providers may have some support available. But many don't. So for instance, there's the mum who wants to do an NHS training, her partner is on a very low income but working full time, and the NHS does not provide any support at all to cover her childcare costs. She will not be able to undertake the training, thus limiting her chances of future employment and moving beyond the poverty line. Then there is a young parents who is offered a basic and non-certified course at a college, a course that may re-engage him/her with education and with time lead to him/her undertaking a course leading to a qualification. A parent who, as her/his situation is, is extremely unlikely to become economically active without this access course, but who wants to, and is offered an opportunity to gain new skills and over time, qualifications and the hope of employment. It won't happen because the college cannot offer childcare and without childcare, the parent can't take advantage of the course offered.

Childcare vouchers and childcare support for parents in training are two ways of enabling parents to have choices. I do believe that childcare vouchers for parents on high incomes, especially if they are in the higher rate tax bracket, are unnecessary. However for those on low and middle incomes, they are more often than not a lifeline.

What's more, the system of available support for childcare is complex and hard to understand. If a child tax credit form does my educated head in, and it takes me a full working day to research support options available to the woman who contacted me (and I have the advantage of being in exactly the same situation as her, so I had some considerable previous knowledge), how hard must it be for the many most in need of support for childcare costs.

Whatever the new proposal is going to be, I'd like to see a shift of focus to ensure those in need of childcare for any form of education, training and employment that is suitable for them to get adequate financial support, and that life choices and chances are not ever determined by the ability to afford childcare or to understand and complete tax credit forms.

PS: Polly Toynbee put it much better than me in the Comment is free section of the Guardian: "But to pay for their (the most deprived two year olds) care by abolishing childcare vouchers (...) would mean that not very well-off mothers would pay to alleviate the plight of toddlers of even worse-off mothers."