Leading article

Why British mothers need a tax break

It's his last chance for a game-changing reform. He should focus on childcare

15 March 2014

9:00 AM

15 March 2014

9:00 AM

Next week’s Budget marks George Osborne’s last chance to make a game-changing reform before the next election. The Chancellor will have his boasts ready: he’ll say that Britain has the fastest growth of any developed country. What he won’t say is that no developed country has needed to pile so much debt onto its citizens to buy this growth. Statistics about GDP are not much use if the average British breadwinner can put less food on the table than five years ago.

To make a proper recovery, something fundamental needs to change in the way the British economy is run. Where Osborne has had the courage to change the Labour system he inherited, it has worked. The modest cuts in tax for the low paid helped employment, and cuts for the best-paid have led to a surge in revenues. The top rate of tax is 47 per cent, far higher than the Blair-era 40 per cent. But to Osborne, politics comes first. He won’t cut more, fearing this would be unpopular.

But there is one option for Osborne that is both politically attractive and economically sensible. Several recent reports have made it clear that Britain is poorer as a country because of the way our economy conspires against working mothers. We do well at educating women. They outsmart and out-earn men in their twenties. But after childbirth, they face the highest childcare costs in the world. In all too many cases, salary barely covers these costs and the same is often true for part-time work. And how many of us would do our jobs for free? Women are told they have to choose, that win or lose they can’t have everything. Reluctantly they drop out of the workplace.

Some Tories understandably bridle when Labour politicians speak of stay-at-home mothers as if they were economic deserters. But conservatism is about liberty, including the freedom for mothers to return to work if they want to. At the latest count, there were 2.4 million British women who want to work but don’t — and a further 1.3 million women who work part-time, but can’t afford to do more hours. In reducing the effective cost of childcare, George Osborne would be making Britain a freer place but also a richer one. Having an economy stacked against mothers is not just a waste of human talent, but a form of economic self-harm.

Study after study highlights this problem. The OECD recently calculated that the economic growth that the Chancellor now likes to boast about could be half a percentage point higher each year if Britain had as many women in work as France or Holland have. This amounts to £46 billion — and tax revenues of almost £20 billion — over a parliamentary term. Crudely put, the Exchequer could gain more than the tax relief costs.

To be cruder still, the Tories have a women problem. If Osborne was able to show that his attempt to run a ‘workers’ party’ also applied to members of the opposite sex, he might be taken more seriously.

To help British women, Osborne does not need an expensive Scandinavian subsidy. Childcare is outrageously expensive in Britain, in no small part because of government tax and regulation. For example, why do we insist that no nanny can look after more than four children? In France, the ratio is one to eight. In Sweden, the Netherlands and Germany there is no limit. By following their example, and allowing mothers to choose the size of their group, costs could be cut by a quarter.

Then, tax. Almost a third of the cost of a nanny is accounted for by various taxes — without these, work would become much more viable for millions more women. Were the Chancellor to make childcare tax-deductible, at least in part, the effects could be transformative. And the cost to government would be met by the boost which working women would give the economy.

The OECD recently found that 68 per cent of the average British family’s second wage ‘is effectively taxed away’ due to childcare costs — a far higher share than in other countries. During the Labour years, money was thrown at the problem (as it was at all problems) and we now spend twice as much as other countries on childcare. It hasn’t worked. Over the past decade Britain has been overtaken by the Dutch, French and Germans when it comes to the number of women in work. It’s not more subsidies that are needed, but tax breaks and reforms.

The Liberal Democrats seem set against this agenda. Nick Clegg has already vetoed attempts by Liz Truss, the education minister, at relaxing regulations about child care to give mothers greater choice. He can usually be expected to quash anything that looks as if it may help middle-class mothers. But this about something different: whether Britain can afford to miss out on the talents of the millions of skilled, educated women who want to work. Osborne is changing things, but far too slowly. If he was to make one tax-cutting gamble before the election, he should bet on British women.

On the evening of Wednesday 19 March 2014, Fraser Nelson, James Forsyth and Andrew Neil will be discussing what George Osborne’s 2014 budget means. Click here to book tickets.

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  • HD2

    The best thing any mother can do is to care for her family – husband and children (and later elderly and infirm relatives too) – and stop worrying about earning money.

    The best thing the State can do for her and her family is to allow people to build sufficient good-quality houses that a family home can be bought (FOR CASH!) by someone who works and saves hard for a decade or so and their subsequent family can be brought up on just one salary.

    That was always the case – until 1970 or so, when Planning restrictions began to inflate house prices (following the rubbish quality and limited quantity of what was built in the 1960’s, whilst immigration forced our population up. That’s Labour governments for you…..)

    The idea that a woman is better off working 30-40hrs/wk in a supermarket checkout on min wage whilst simultaneously paying for child-care is so insane that only Hatty Hatemen and the Treasury could have dreamt it up.

    And they must, surely, have been on some chemical or other to have ever thought such a bonkers idea was work proposing – let alone implementing. The ONLY merit in the current scheme is that HMRC and lawyers get more money: the former through income tax and NI and the latter through Family Court divorce work.

    • Dan Grover

      I think the point, though, is that Childcare is so expensive that it *isn’t* only check out workers and secretaries to whom this affects, but also women with highly sought after skills who earn as much as their husbands, if not more.

      Furthermore, it’s not always a case of simple mathematics; There’s more to life than simply doing the utilitarian thing and women have just as much right as men to chase their dreams, seek a career in a sector and environment they enjoy, to try and achieve something. One might argue “If that’s your goal, that’s great, but don’t have children” – which is fine but a) for the wider economy that means you have a chunk of people that would like to be working in a demanding job whilst simultaneously having a bunch of people that want to work in childcare with fewer customers, b) assumes that it should be women staying at home rather than men despite their desires being no less valid than men’s and c) as the actual blog post here suggests, has a real chance to actually earn the country (both the people in it and HMRC) money. What seems made to me is that we should actively seek a situation wherein we have a large chunk of the country who are capable of working finding themselves unable to.

      • The trouble is tax breaks must mean someone paying for them. My husband is earning under £40,000 a year and I stay at home to raise our adopted daughter. She is below the age of three and, because she is adopted, has even more need of a stable, consistent caregiver in her early years. Yet all subsidies are targeted at working women and we pay more tax as a couple than two earners on a comparative household income.

        • Dan Grover

          Well, the article above suggests that this “tax break” would end up paying for itself, by having more people in work (at both ends – more women going back to work after having kids means more women in those work places, and more demand for childcare means more work in that area too).

          I’d also argue that two people, both working, with a comparative household income to yourself (an average of £20k each – which one assumes is likely to be full time) are exactly the people that need the help most, as they end up with about an extra £2,500 a year yet have a significant extra burden in the form of childcare, which will cost them far more than £2,500 a year – and this scales linearly with the number of children, of course. If either one were to lose their job or quit to stay at home and look after their family, they may well end up saving money but then have to live on £20,000 for a family of at least three. I’d argue these people need the help.

          • 1. Your point about those who need it would be fine, but it goes up to £300,000. So I’m sorry, that argument doesn’t wash.
            2. You cannot say that it ultimately aids the economy, study after study shows children in their early years are better off cared for by a consistent carer.
            3. If it’s paying for itself why are we paying more in tax than comparative incomes.

          • Dan Grover

            1. You’re the one that presented the situation in question, not me. You seemed to be implying that the people in that given situation – two earners taking home the same salary as your husband – were better off. My point is that they aren’t, really. If you want to talk about other scenarios too, by all means paint them.

            2. Well, those are two totally different things. Whether the benefit of a consistent carer outweigh the economic benefits are entirely up for debate; What you can’t say is that “you cannot say it ultimately aids the economy” – it does. One does not need to agree with the position put forward here to acknowledge the plusses of the argument (even if you think the counter arguments are more convincing).

            3. I don’t really understand what you mean here. The manner in which you pay more tax now – that tax free allowances are not shareable between spouses, thus meaning that two individuals working take home more pay – have absolutely zero to do with a policy that hasn’t even come into effect yet.

          • 1. Yes I acknowledge the first, which is why I explained why I introduced it.
            2. You still can’t ultimately say, in an era of mass unemployment, whether it ultimately aids the economy. Those jobs, currently being taken by women, are fill able by other people therefore whether mothers take them isn’t the deciding factor. All that is happening here is that the government are taking money from some people to prescribe how it is spent for other people. Leave that money with the original earners of it and it would still go into the economy and create jobs elsewhere. This is without the added detriment that constant childcare for those at their areas and most significant development have been seen to create by various studies.
            3. Again, if this pays for itself, why are we paying more tax than comparative incomes. It doesn’t pay for itself; we pay for it. The economy may be better off, but a significant portion of people within the economy are worse off as we are paying for it. Our money isn’t the governments by right, IRS ours. That’s the mistake people often make.

          • cbinTH

            I generally sympathise with you, but as regards point 3 I’m not sure I’ve understood you correctly.

            You say that as a couple – say couple A – which has one earner on £40,000 a year, pays more tax than another couple – couple B – each of whom are earning £20,000 a year, that couple A are subsidising the lifestyle of couple B. But it doesn’t appear to me to be so.

            After all, if one of couple B chose to stay at home to look after the children, then the remaining worker in couple B would still be only earning £20,000 a year and paying a smaller proportion of income in taxes than couple A. And what is more, the total tax income of the government would be smaller by the amount of whatever it got from one person’s £20,000.

            Couple A could still be said to be paying more tax than couple B and so to be subsidising them, but if a government changed the tax system so that couple’s were assessed for combined rather than for individual incomes, would that really be a change for the better? There may be unintended consequences. Couple B might decide not to work as much – since the marginal benefit was reduced – or might decide, in order to pay less tax, never to officially become a Couple. Not a desirable result, to disincentivise marriage. Their children might therefore receive government support to which they would not previously have been entitled.

            I do agree that there is a moral case for arguing that you shouldn’t be taxed to support the indulgences, rather than the necessities of existence, of other equally well-off (or even better off!) people.

          • Thank you for your considered reply. Sorry for the delay in writing my daughter has had croup so she’s taken up all my attention.

            As I said in my previous reply I used the £40,000/2x£20,000 to show the differences in taxation. As with free school meals etc I have no problem aiding others with my taxes who need help. It is the evident ideology that is shown because of who is aided by this, I.e. Those that earn as much as £300,000 a year.

            However I query how much we are aiding them (those on the £20,000) as it appears to be pushing mothers to work in an economy that is already full of unemployed. The system seems to ensure that there are more available for work, therefore pushing wages down to below that which can sustain a family.

            As for your position couple B might decide to chose to work and earn less, but at the moment it doesn’t benefit couple A to work harder as they don’t benefit either. My husbands pay has just gone up from under the key £40,000 to £60,000. In essence we will be earning with his income what we used to earn jointly, but we will now be taking home less. However our current working arrangement means that there would be another job available for another family, therefore meaning their family wouldn’t need financial support as much.

          • cbinTH

            Sorry for my belated reply. I’m afraid your comment has triggered a little keyboard rant from me! These things touch indirectly on family issues that are often debated in this household – on questions about how families ought to look after children and how far my parents and myself are being asked to help my brother out.

            You say, “My husbands pay has just gone up from under the key £40,000 to £60,000. In essence we will be earning with his income what we used to earn jointly, but we will now be taking home less.” -Ah! Now I see what’s prompting your thinking! Yes, I can see that must be galling.

            As to women being pushed into work, I tend to agree with you. I’m not sure the tax system is that strong an influence, but society as a whole is pushing women into work, and it’s certainly possible that this has been pushing down wages as a whole, and also has complications in terms of a lower birth rate (especially for the most successful women), creating a social stigma for women who remain housewives, and has wider costs for society as it alters its practices to accommodate working mothers. For instance, schools are now beginning to stay open far later, women have legislation to protect them if they choose to work truncated hours, business’ have to accept both maternity and paternity leave, taxpayers money is being spent, directly and indirectly, on childcare, and grandparents and other relations have to fill in to provide childcare facilities.

            The last factor is interesting because it is an entirely invisible cost, but in one form or another it is very common now. Family members are being put to considerable inconvenience so that a mother doesn’t have to deal with that inconvenience, and so that she will have a more interesting life. Really, a parent might feel they have no obligation to support their grown up child for anything but a temporary emergency or a severe case of bad luck, but very few will refuse to help and ruin their daughter’s, or daughter-in-law’s, career. In many ways the current trend towards two working parents is unnatural, in that it relies on external (ie. external to the pure business transaction, and hence “unnatural”,) factors to make it possible. It relies on government legislation, taxpayer support, social pressure, and unpaid family support – without these things, it would be more difficult for a woman to do anything but casual work and so less attractive to do so.

            However, having said that, there is a huge social cost from the traditional way of doing things, too. Work – even of a humble sort – is a great provider of social contact, of wider experiences and horizons, as well as pride and self respect in a job well done, and it gives a woman both a measure, at the very least, of independence within a marriage and a safety net if a marriage ceases for any reason.

            What bugs me is just the simplicity of the way these issues are addressed on Women’s Hour, etc. The idea that neither choice – to be employed or to look after children and the home full time – is perfect and that both have costs is brushed aside in favour of a simplistic desire to get every woman into work, of whatever sort, as quickly as possible. Some critics say that this is a time when self fulfillment is perceived as the higher good and that the self-interest of parents is being placed above that of children. I’m not sure quite what to think – if I were married, I wouldn’t want my wife to be denied all the things that come from work, and I wouldn’t want to stay at home and do the housework and look after the kids, and I wouldn’t want the kids to be sent off to the nursery, kicking and screaming. I suppose I would just leave it to my wife to make an unpressured decision.

            On a side issue, referring back to your comment, I can see the logic behind leaving this benefit non-means tested, as the means test is expensive and inconvenient for recipients, grossly reduces the number of eligible people who would take it up, and makes the benefit the subject of moral disapproval from those higher up the income scale. Having said that, none of the objections to the subsidy disappear because the wealthy will also receive it, and it does raise the specific problem that, once again, someone with lots of money and children is getting a tax cut (in effect) that someone with a bit of money (and no children) is not.

            On another side issue, the article calls for de-regulation in nurseries so that they have more children per carer. Considering the difficulties I observed in the staff looking after and bonding with screaming children, this seems a little counter intuitive to me.

          • Thank you for your full reply. I am limited in time so I can’t reply in kind myself, I just wanted to say I appreciate the points your making.

          • cbinTH

            If I may interject.

            If someone’s additional income, through working, will not be enough, after additional costs are taken into account, to justify that work, then this doesn’t change because the government introduces a subsidy. The choice open to them of going to work becomes no more beneficial to society (perhaps even less so), only more beneficial to them personally, because their decisions have been distorted.

            So, if we accept that this policy is going to make society more productive then we are accepting that the free market doesn’t work in the one way it is said to – encouraging efficiency.

            Additionally to this problem with the rationale for the policy, there are moral questions, too. Why should a childless woman, who already pays for public educational facilities through taxation, also be taxed to support the lifestyle of the parents of children? Such parents already benefit from things like maternity and paternity pay and from all sorts of little advantages that a childless person doesn’t get to enjoy. Or, what about the hidden costs of working parents: how many grandparents, for instance, are having to provide a free childcare service – for the sake of enhancing the freedom of mothers to work how many other people are effectively having their freedoms curtailed?

            Then there’s the question of what benefits society as a whole? If one of the answers is, more children – so as not to see a future labour shortage or a shortage of future taxpayers to help the elderly – then we desperately need to prevent women from going out to work, because there is an apparent correlation between staying at home and choosing to have a larger family. And we need to incentivise in particular the wealthier mums to do this, because their children will require less subsidy and produce more taxation revenue in the future.

  • Gwangi

    Question: why should poor people pay taxes so rich people, who earn 6 figure sums and live in million pound London houses (and probably have a holiday home somewhere else too) get thousands in subsidised childcare, and for that matter, billions in maternity ‘pay’ (ie benefit) linked to income, and child benefit.

    Of course, democracy is just bribery by another name, and that is why such undeserving parasitic spongers are given subsidies. But they don’t deserve them – and deserve state handouts much less than the longterm unemployed who maybe do some cash in hand work on the side.

    I believe is massive reform of the benefits system – but that should apply across the board. No benefits to the undeserving, rich or poor. Help people to help themselves. The welfare state should not be used as a bribe for votes or a tax rebate for the rich.

    The cash spent on this yummy mummy bribe should have been used to incentivise small business and reduce their taxes; it could also have been used to one to one teaching for kids struggling at infant school with reading/maths. But oh now – now billions is going to subsidise millionaires like Clegg. And they wonder why people are abandoning these main parties to vote UKIP? I am sure Nigel Farage does not want any state subsidy for those as rich as he is.