PHS policies - Implementation and monitoring guide

United-Kingdom – Employer supported childcare voucher

  Criteria Description
Description of the measure Measure Employer supported childcare vouchers
Country United Kingdom
Managing Authority HM Treasury
Legal Basis Finance Act
Launched in year 1989
Main objectives The main objectives of the employer supported childcare vouchers are :
  • to favour maternal employment,
  • to ease access to childcare services for working parents (especially regarding their affordability).
Nature and type of public intervention Public intervention target the demand side. Thus, employees/parents agree to forego part of their salary (through a salary sacrifice arrangement) and receive the corresponding value in childcare voucher. This amount is exempted from tax and National Insurance (NI) Contribution. Employers also benefit from NI exemptions up to 12.8% of the voucher’s value. Parental access to the scheme is entirely dependent on whether the employer offers the vouchers.

Up to ₤55 (€64.5) per week per child can be deducted from the employee gross salary for basic rate tax payers. High earners can deduct up to ₤28 (€32.6) per child per week and top-rate tax payers up to ₤25 (€29.9).

Type of service providers and the competition between them The child-care sector is dominated by private, voluntary and independent providers which make up more than 80% of provision.
The price level and price setting mechanism The child-care sector is regulated by free-market principles.
Type of employment relations Workers can either be employed by private provider (i.e. triangular relationship), directly by the parents (i.e. direct employment relationship) or self-employed (i.e. registered child-minders). There are approximately 204 000 workers employed in the childcare sector.
The administrative framework and the role of the public authority The Ofsted (Office for Standard in Education, Children’s Services and Skills) is responsible for auditing and regulating childcare and preschools.
Type of services Nurseries or crèches; registered child minders or nannies, holiday play schemes, children’s outdoor activity centre (run by school of local authorities).
Target groups (users and workers) Working parents.
Effects Employment No information found.
Better conciliation of work-life balance A survey revealed that 17% of vouchers users would have to leave work in case of a potential removal of tax exemptions for childcare vouchers. Another 38% said they would cut down hours.
Improving access to childcare (including early childhood education and care (ECEC)) Since 2005, childcare vouchers have helped approximately 700 000 families to afford childcare. Savings thanks to the use of Childcare vouchers reach approximately ₤1 800 per year (€ 2 095) for an average family. 83% of childcare vouchers’ users are basic rate taxpayers, with the largest take up being among manual and unskilled workers.
Budgetary effects Public costs In 2007, the Childcare vouchers’ system represented a loss of revenue of ₤ 240 million (€ 281 million) of which around ₤ 170 million (€ 199 million) went to families.
Earn back effects No information found.
Net cost No information found.