Why tax policy reform could help women return to work

24 Jun 2021 By Lynsey Christini

The current childcare subsidies available under law are inconsistent and do not provide sufficient support, says Lynsey Christini

Early indicators suggest the pandemic has had a severe impact on gender equality. Women have found that their chances of returning to work or of furthering their careers have suffered. The lack of affordable childcare is the key issue in the apparent return to stereotypical roles – with more women being responsible for childcare, home, and family.

To help reverse this unfortunate regression, the government must reform tax policy so that it provides effective support to working women. 

There is an immediate need for subsidised childcare costs for parents working from home. This alone would relieve the impact of school holidays for both employer and employee.   

The subsidies available under current tax law are inconsistently means tested and provide support at insufficient levels. Crucially, they do not overcome the financial decision of whether returning to work is affordable.  

In the past, childcare vouchers helped families receive up to £2,860 of annual earnings exempt from income tax and national insurance. However, this scheme closed to new participants in October 2018. The self-employed did not qualify for the same support.

The subsequent introduction of Tax-Free Childcare Accounts was supposed to provide greater benefit with the government paying £2 of childcare fees for every £8 paid by parents – capped at a government contribution of £2,000 per annum. While this sounds good, the cap of £167 per month is not sufficient to bridge the gap between fee levels and what is affordable out of net income.

A further problem is accessibility. A two-parent family must have both parents working, each earning not less than £120 per week, but if either parent earns more than £100,000 per annum they will not qualify for tax free childcare.

Child benefit payments are notoriously unfair. A two-parent family with both parents earning £50,000 (£100,000 total income) can receive annual child benefit payments of £1,099 for their first child, plus additional payments at lower rates for each subsequent child. If one of the parents earns more than £50,000, benefit would be clawed back partially or in full depending on the level of excess earnings over £50,000.  

These inequalities need to be eradicated. The benefits must align more realistically to the true cost of childcare – a reform which would allow more women to return to the workplace.  

Linked to affordability is the shortage of spaces in existing nursery and childcare facilities.  Working from home does not overcome care responsibilities. It assists in a better work-life balance and increased presence, but childcare is still required. 

Government needs to support operators in opening new nurseries. A mix of incentives: Stamp Duty exemption on properties purchased for the purpose of nursery and childcare facilities; exemptions and reliefs from corporation tax and employer national insurance exemptions could contribute to overcoming the high costs which deter new operators. 

Flexible working, which is of direct benefit to working women, needs to be encouraged through tax policy. The temporary tax relief to help with the increased cost of utilities due to home working, (which currently provides a tax exemption on £312) should become permanent. Allowances should be aligned with the use of home by the self-employed.

Similarly, the tax-free employer reimbursement of the cost of equipment and office furniture bought by staff to enable home working should be made a permanent relief. 

While employers need to accept that working from home can be sustainable, the government needs to support employees with legislative changes. The Flexible Working Regulations 2014 provide a 26-week threshold before new employees can request flexible working. This is outdated and does not encourage negotiations on work patterns from the outset. Importantly, it limits the ability for women with care responsibilities to accept employment. 

Each of these example areas for change would not, in isolation, enable more women back into work but once improvements in all areas are combined, the overall impact would allow for gender fairness to be a more secure reality. 

Lynsey Christini is a senior manager with Moore Kingston Smith

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