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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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