COMMENT
Chopping Childcare Charges!

By Cliff D'Arcy
February 9, 2006

According to national childcare charity the Daycare Trust, the average cost of a full-time nursery place in Great Britain is close to £7,400 a year.

Although the typical cost of a full-time place for a child aged less than two is now £142 a week, nursery costs in London are the highest in the country. The average fee for a youngster in an inner London nursery is £197 a week, over £10,200 a year, while in outer London, the weekly figure is £174 (over £9,000 a year). The lowest nursery costs were in the Midlands and North East.

What's more, childcare costs are rising much faster than the general rate of inflation, up 8% last year in Scotland and 7% in Wales. In England, the cost of a full-time place has soared by more than a quarter (27%) over the past five years. This is partly due to rising staffing costs, as many nursery workers earn the national minimum wage, which increased last October. In addition, rising prices for commercial properties has forced up the cost of premises.

Even employing a childminder gobbles up a lot of parents' cash: average weekly child-minding fees come to £130 a week across Great Britain (almost £6,800 a year), and £163 a week in London (£8,500). However, some childminders in upscale areas are earning up to £500 per week per child.

With two children under five and a wife who works part time, I know exactly how expensive childcare costs can be! Indeed, before my son started school and my daughter turned two, our childcare costs peaked at over £1,300 a month, which was our largest single household expense, even outweighing our rent!

For someone on the average wage of £431 a week, this cost would be impossible to bear, especially when you consider that the average award for help with childcare costs is just £53 a week. Furthermore, British parents bear around three-quarters (75%) of the cost of childcare, compared to just three-tenths (30%) for European parents. This explains why British parents often complain about a lack of affordable, quality childcare!

Nevertheless, there are three ways that parents can get State support for childcare:

1. Free nursery or reception-class places

Local authorities must provide these places for all three and four year olds during term time, which provide childcare for 2½ days per week spread over the working week. Alternatively, if your child is in a private nursery, your local authority will make payments towards your costs (my wife and I received roughly £1,200 a year for our two terrors).

2. Childcare vouchers

As I explained in point 5 of Tax Tricks For 2006, working parents can receive tax-free childcare vouchers worth £50 a week, or £2,600 a year, from their employer. As these vouchers are exempt from income tax and National Insurance contributions (NICs), they are worth between an extra £816 and £1,066 a year to employees.

Last year, my wife gave up £2,600 of her salary in return for £2,600 of vouchers annually, which means that she avoids 40% tax and 1% NICs on £2,600. Hence, her salary sacrifice leaves her £1,066 a year better off. In addition, her employer saves around £300 a year from paying reduced employer NICs, making childcare vouchers an attractive benefit for both companies and their workers!

3. The Working Tax Credit (WTC)

Although the WTC is one of the many means-tested benefits, which means that better-off workers won't qualify for a payout, around nine out of ten working families do qualify for some help with their childcare costs. At best, the child-care element of the WTC will pay out up to seven-tenths (70%) of childcare costs, although most recipients get a much lower level of support. You can learn more about the Working Tax Credit here.

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