Increase tax-free childcare to keep parents in work, REC tells Chancellor ahead of Budget

With a month until the Budget, the Recruitment & Employment Confederation (REC) is calling for reform of childcare, such as the tax-free childcare scheme, to keep parents and carers in work. REC is concerned that inaction could harm the jobs market and the recruitment industry, as labour shortages since the pandemic risks sliding into a £39bn GDP shortfall from next year.

REC is the latest organisation to ask for childcare reform. Earlier this month, the Confederation of British Industry (CBI) called on the government to urgently announce extra funding and changes to childcare and early years support. The CBI argues that a more accessible and affordable system is an immediate economic priority.

In a Budget submission to the Chancellor Jeremy Hunt ahead of the Spring Budget, the REC suggested the government should:

• Increase the financial contribution to the tax-free childcare scheme so that for every £8 parents put in, government double their current contribution from £2 to £4. This will increase the number of families who can afford childcare, freeing up parents and guardians to return to work. 
•  Increase funding for nurseries and childcare providers so that no-one in the UK is left without provision. Current funding leaves providers unable to operate in some parts of the country, severely limiting people’s access to reliable childcare.

These recommendations will help more people return to work, pay more in tax, and slash social security spending for government.

Kate Shoesmith, Deputy CEO of the REC, said:

“Our most recent Report on Jobs shows that the supply of staff continues to fall, which is such a concern because our modelling shows that a failure to tackle labour shortages in the UK could cost the economy up to £39 billion every year from 2024. If ever there was a time when we need to get the economy moving and address the cost-of-living crisis, it is now.

“We urge government to work with labour market experts to better understand and address the causes of economic inactivity  – and we are finding the availability and cost of childcare is a significant barrier to work right now.

“One solution is for government to promote and increase the take up of the tax-free childcare scheme -  this scheme is currently used by just over 500,000 families in the UK, despite being open to over 1.2 million families. This is disappointing because tax-free childcare can make a big difference, helping with the bills for nurseries, childminders and after school clubs.

“Acting on childcare support is also vital to help the over 50s stay in work. We know that this is not just a responsibility on government, businesses have a role to play too. Employers can incentivise older workers to stay on through better job role design and flexibility. But without action on childcare and social care, many over 50s who have caring responsibilities for grandchildren and elderly parents, are going to continue leaving the workforce.”

Ends

Notes to editors:

Tax-free childcare (TFC) is a childcare support scheme. It replaces directly contracted childcare and childcare vouchers offered by employers for new claimants (tax and national insurance relief is now only available to eligible employees who were existing members of those schemes before 4 October 2018). TFC covers England, Scotland, Wales and Northern Ireland. Parents cannot benefit under both TFC and childcare vouchers/directly contracted childcare at the same time. Some people will be better off claiming TFC than tax credits or universal credit. Similarly, some people may be better off claiming TFC than childcare vouchers/directly-contracted childcare.

In our Overcoming Shortages report, we show exactly how much damage could be done if we don’t step up. With a 10% surge in demand for staff across the economy, and the labour market restricted by shortages, we could see a 1.2% fall in expected GDP and productivity by 2027 – costing the economy anywhere between £30 billion and £39 billion every year. This figure is just short of the entire current defence budget, or two whole Elizabeth Lines.

Report on Jobs: Recruitment activity dampened by uncertain outlook and candidate shortages in January.

For more information and interview enquiries, contact the REC Press Office on 020 7009 2157, 020 7009 2129 or pressoffice@rec.uk.com. Outside of regular office hours, please call 07702 568 829.

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About the REC

The REC is the voice of the recruitment industry, speaking up for great recruiters. We drive standards and empower recruitment businesses to build better futures for great candidates and themselves. We are champions of an industry which is fundamental to the strength of the UK economy.

Find out more about the Recruitment & Employment Confederation at www.rec.uk.com.