Are Maid Credits Fair?

Yesterday I looked at how tax deductions for domestic work such as childcare, cleaning and cooking – a Swedish policy that Cameron has spoken admiringly of – have strong feminist credentials.  They would redress an underlying gender bias in the tax code and help women back into work.  In this post I want to examine the broader consequences of the policy for economic equality.

Not surprisingly, policies that promote gender equality tend to be economically progressive, and vice versa. Increasing numbers of women working outside the home has driven economic growth, and the relative absence of women in the work place has been an important factor in Italy’s disappointing economic performance over the previous few decades.  In Britain, women entering the workforce accounts for over a quarter of the increase in household wealth since 1968, according to the IFS.

So irrespective of which women return to work, if they do so they will both boost the economy and their household income.  The problem with ‘maid credits’ is who they directly benefit.  Of course, this would depend to a certain extent on the details of the scheme were it to be introduced, and specifics such as whether there was a cap on deductibility could make a big difference.  However, it is likely to be both regressive and badly targeted.  Little or no money would go to those families who can’t afford these services even with the tax break.  Of course there would be women who would be able to afford these domestic services with a tax break but who couldn’t without it, and whom it might therefore allow to return to work, but equally a significant amount of money would go to richer families who can already afford to use these services.  For these families, paying tax on income spent on childcare or a cleaner is unlikely to have prevented one parent from working.

The fact that a policy is economically regressive does not necessarily make it wrong.  If this were the case we wouldn’t fund the arts. However, the broader context of childcare policy in the UK makes the introduction of ‘maid credits’ much more problematic.  Childcare in the UK is incredibly expensive.  Across the OECD, an average two-earner family will spend 12% of its income on childcare, whereas childcare costs an average British family 27% of its income.  In 2008, the average cost of a nursery place for a two year old in England was £8,268.  Tax deductibility would do nothing to drive down the underlying cost of the system, which in itself would make the scheme very expensive.

At the same time, the coalition has significantly reduced provision for the poorest families.  The amount the poorest can claim for childcare costs has been cut from 80% to 70% of costs, while budget cuts are causing sure start centres to close. This will exacerbate the very problem the maid credits are supposed to solve.  Childcare costs will become unaffordable and women will be driven out of work.  However, whereas maid credits would probably benefit richer women, the cut in direct support for childcare hits the poorest, who are most in need of the extra income working provides.

Compare this with the broader framework in Sweden, where the ‘maid credit’ policy has been implemented.  Poorer families pay nothing for childcare, while nursery fees for the first child of a richer family are capped at around €140 per month, will families paying less for subsequent children.  The ‘maid credit’ exists as part of a highly economically progressive system which treats childcare as a universal benefit.

And this is the problem for Britain.  It’s not surprising that our politicians admire Nordic governments, with their excellent records on equality, social mobility and education.  But cherry-picking policies like this won’t work.  ‘Maid credits’ make sense in the context of a universal social security system that helps everyone at the times of their life when they need it most, such as when they have young children. Without this baseline of provision, subsidising domestic work would be little more than a transfer of resources from the poor to the rich, exacerbating the coalition’s already regressive childcare policy.