Budget day 2013

Posted in: Finance Last updated: 21 Mar 2013

So another budget day comes and goes, and as usual we're all left scratching our heads, trying to work out how badly affected we are. Newspaper post-analysis always seems to pull out the winners and losers and in this economic climate it never feels as if anyone is exactly a 'winner'.

Pros and cons for families

For families the complexities of their personal finances can mean it's even harder to weigh up the pros and cons of changes, even in a budget that George Osborne has dubbed "fiscally-neutral".

This figure is derived from parents being allowed to claim back 20% of childcare costs, based on the government's calculation that average annual childcare costs per child are £6,000. But to help you determine if this will benefit you, bear two things in mind: it's not being introduced until 2015, so that's a long two year wait for hard-pressed families, and it's only available to pre-school age children at the moment. Although the government has said it will increase in scope over time to include older children.

The big difference between this scheme and the voucher scheme is that it is handled by parents rather than run through employers. With only limited numbers of employers signed up to the voucher scheme this means the new tax-free scheme will be more widely available – which has to be good news, especially if you're self employed.

But it isn't exactly a straight-forward system and I've already read comments from some financial experts asking when the government will make it even simpler and make things that help you work – like childcare – tax-deductable expenses.

"... the new scheme will only be available to families where both parents work."

Anyway, this is the system it is proposing, so how will it work? Parents will open an online account with a voucher provider and the government will top-up the parents' payments by 20% (or 20p for every 80p you put in) up to a top-up maximum of £1200. The vouchers can then be used against any Ofsted-regulated childcare providers. However, it looks as if parents using the existing employer-based voucher scheme can continue with that instead, and they'll have to work out which of the schemes is more cost-effective.

As ever it all comes down to the detail: how many will benefit under the new scheme compared with the old will depend on childcare costs, hours of care needed, number of children, salary, etc.

What is significant – especially politically – is that the new scheme will only be available to families where both parents work (excepting lone parents) and each parent must earn less than £150,000 per year. However, there are still lots of details missing, such as how many hours a week parents have to work to be eligible. Under the existing voucher system, families can claim if just one parent is working.

The government's aim is to help families get out of the 'can I afford to work?' conundrum where childcare costs can quickly outstrip one parent's take-home salary, especially in the UK where childcare provision is so expensive. It's politically sensitive because those who view working mothers as the antithesis of family values, point to the lack of financial help stay-at-home mums get. Some arguments will never go away!

And the rest...

Returning to the budget, what else will help families? Well, on the broadest level Chancellor of the Exchequer, Osborne, said the education budget has been ring-fenced, fuel duty has been frozen, and the personal tax allowance threshold will increase to £10,000 from next year. This might feel like slim-pickings but in a debt-laden economy barely scraping into growth, this may be as good as it gets.

Note: Whilst we take care to ensure Hub content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. OneFamily do not provide advice so it may be worth speaking to an independent financial advisor about your own circumstances.