Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.
Over the past 30 years, we have witnessed the introduction of a range of measures aimed at encouraging women to work, to develop serious long-term careers, and to be treated equally to men by employers.
This has led to big steps forward in many areas, and for many women. But the narrow focus on employment too often ignores the realities of motherhood.
Most women want to have children; participating in and supporting their education and learning is, for many, one of the most important duties they have.
This means in practise that many women end up with two careers to manage: motherhood and employment. This is both demanding and incurs costs, and our system should reflect that.
I remember, 40-odd years ago, seeking to persuade Sir Geoffrey Howe (who was then Shadow Chancellor) that employed help with bringing up young children should be a tax deductible expense. His reaction was that it would be too expensive.
Thus, working mothers have had to pay for child-minding assistance out of post-tax income. If a builder hires a carpenter to undertake necessary work, the cost is tax deductible. But, if a working mother (or indeed father) hires a nanny to help look after her child, it isn’t.
But, at last, in this year’s Budget proposals include measures up to a certain limit, to make married life expenses for working mothers more manageable. The reforms will implement in 2025, with free childcare available for children aged one and above (presently only starts at three years of age).
This will mean that more mothers to afford to go back to work earlier; many mothers have been aware that they earn little net, after the costs of child minders and after their own costs.
Women wanting to pursue a career and work need to be able to earn enough to finance themselves and family. These measures in this year’s Budget should therefore be popular – especially with women.
But I pose again my question to Sir Geoffrey. A working mother has to employ help in looking after her children; surely this is a necessary cost which should be deducted from her taxable income?
The Government’s current measures are vulnerable to fiscal drag, which will pull 65,000 working parents into the tax trap. Some parents will find it harder to go back to work, or will be disincentivised from seeking higher wages.
Jeremy Hunt used his Spring Budget to extend the 30 hours of free childcare to all working families with toddlers over nine months old.
This support is, however, removed when one parent earns over £100,000 per annum – also the threshold when they start to lose their personal tax free allowance. According to the Institute for Fiscal Studies, that combined cliff-edge means that a parent with two small children will be worse off if they are earning £134,000 than if they were earning £99,000.
There are currently 78,000 parents with children under the age of four who have salaries of £100,000 or more and are thus vulnerable to this tax trap. Moreover, this threshold is frozen: as a result, the number will swell to 133,000 by 2027/8.
Although not all of the existing 78,000 will be affected (because some will be especially high earners) almost all of the 55,0000 individuals who will cross the threshold for the first time will be immediately hit by the fall in support. They will see a material drop in their disposable incomes, despite the fact that their salaries have gone up. Matthew Lesh, of the Institute for Economic Affairs, has said:
“If the underlying goal with this childcare policy is to ensure parents, particularly mothers, can get back into or stay in the workplace there is a disincentive which could underline the whole enterprise.”
He’s right. It will discourage people from working or from working hard going for promotions and building up their skills over time, and could slow people’s career progression because they are fearful about falling over this threshold.
The Government seems to be doing everything they can to sting the lower end of the highest-earning bracket.
Mary-Anne Stephenson of the Women’s Budget Group warns that the cliff edge poses a particular risk to women, who may be unable to return to work because they have a high-earning partner.
It should not be this way but often, in such households, the cost of childcare is weighed against a woman’s salary when deciding whether it is worthwhile for her to return to work. If one person in a couple has a salary that has crossed the threshold, it may not make financial sense for the second parent to work, because they will have to pay for childcare to do so.
The partners of high-earning men (and women) could thus end up less able to return to work. Women who are economically dependent on higher-earning partners, will be particularly vulnerable if the relationship breaks down, because it is difficult for people to return to the labour market after they have left.
Young married couples and parents should welcome the Government’s measures. But the above problems need to be sorted out. Otherwise, an important, well-intentioned piece of legislation will lose its favourable impact.