Childcare? What childcare?
The Government has made it easier for employers to provide childcare, but there is still a lack of awareness of the options. Nic Paton takes a look at voucher schemes.
It looked like an excellent early Christmas present for working parents. In December last year, paymaster general Dawn Primarolo announced that the Government would be reforming tax and National Insurance relief on employer-supported childcare, and on childcare vouchers in particular.
From April 2005, employees will be eligible to receive up to £50 a week of their childcare costs, free of tax and National Insurance, when their bosses either agree a contract with an approved carer, or provide them with childcare vouchers.
"Employers have a very important role to play in helping parents to balance work and family life, and particularly in helping parents to meet their childcare needs," says Primarolo. "We are committed to supporting them in this and today's announcement will help to ensure that more parents have access to affordable, good quality childcare."
The question worrying HR professionals who have managed to convince their organisations to embrace the current childcare voucher scheme, is whether she is correct. Some fear the proposed changes may actually deter employers from offering vouchers altogether.
They certainly hope she is right. The cost of childcare is one of the main barriers preventing parents - predominantly women - from getting back into the workplace, and denying employers a pool of talent they would like to tap into.
The Centre for Economics and Business Research has estimated that the UK is now the most expensive place in Europe to raise children. The average childcare bill for children between the ages of two and five is a whopping £25,000.
Yet, according to figures published exclusively in Personnel Today from voucher provider Accor Services, the vast majority of employers singularly fail to offer workers benefits such as childcare vouchers.
Its study of 113 HR professionals, carried out in March this year, found that while 96 per cent of firms had heard of the vouchers, just 18 per cent offered them to their employees. Of those organisations not currently offering vouchers, 30 per cent planned to do so in the future, and 41 per cent said they would be offering them from April 2005.
Despite the best efforts of Primarolo and chancellor Gordon Brown, only 58 per cent of companies were aware of the tax changes coming in, and just 3 per cent of the staff responsible for administering childcare voucher schemes personally used them.
Anne Ross, Accor Services corporate business manager, concedes the lack of awareness is a concern. "A lot of people have never heard of childcare vouchers, which is quite worrying," she says. "We get so many enquiries about it that it can lead to a false sense of it [being widely in use]."
Accor currently has between 700 and 800 childcare voucher clients, and around 30,000 parents take the vouchers. This, she admits, is "tiny" compared with the number of parents in the workplace. She predicts that with the changes, the market - currently worth £69m - could rise to £300m by 2006.
In the past, there have been misconceptions among employers that the vouchers were expensive and difficult to administer. But with the introduction of salary sacrifice schemes - where the employee takes a chunk of their salary as vouchers - and now the tax reforms, that should no longer be the case, she insists. "Once it gets going it is really quite straightforward."
The firm is currently working with tax consultants to produce a guide on the changes. The message is also beginning to get through that, by offering benefits such as childcare vouchers, employers are adding a vital retention and recruitment weapon to their armoury. "They are finding that, by offering childcare vouchers, they are becoming an employer of choice," Ross says.
"HR is fundamental to it. They are the people who need to convince management that it is a good thing. We have seen growth in the past three years of around 30 per cent year-on-year. But the take-up is still relatively low," she adds.
While changing the tax regime will undoubtedly bring some benefits, fiddling with something that currently works relatively well when used is a worry, argues Richard Stokes, HR services director of employment and reward at AstraZeneca. The company has been a longstanding advocate of childcare vouchers (see case study ), but Stokes is concerned the change could actually deter some employees from entering the market.
As it stands, all childcare vouchers are exempt from Class 1 NI contributions. Therefore, capping the NI exemption at £50 a week, even with the accompanying tax break, could make it less attractive to employers.
"At the moment, people can take quite significant amounts of vouchers and not have to pay NI on them. Even though there is a tax advantage now, clearly there may be a problem for people who use them for more than that £50," he says.
At AstraZeneca, for instance, there are people who are second-salary earners in the household, and so sacrifice the vast majority of their income into vouchers.
While the reforms are still work in progress and may yet change, if they go ahead as currently laid out, there may be some hard thinking to do. "We will have to consider over the coming months what our response is going to be in terms of our benefit plan," he explains. "We can see there is potentially a quite significant downside."
But others predict the change will make a difference. Nancy Weeden, childcare services manager for voucher provider Sodexho Pass, believes having a tax break will raise interest in the vouchers, and could lead to a flood of employers coming on board.
"We think there could be a huge growth in demand, with employees asking employers why they aren't offering them, so it might be a bottom up change," she suggests.
Case study
Cadbury Schweppes