Not the cleverest idea I\’ve ever seen

The SMF has proposed a national childcare loan scheme in which parents earning more than £12,000 a year could request a lump sum to be repaid monthly through the tax system over an extended period and at a low interest rate.

An SMF report gives the example of a family paying £7,800 for childcare over three years. Under the scheme, their repayments would fall from £50 a week over three years to £14 a week over 11 years.

A mortgage to pay for child care.

No, really, I just don\’t see it somehow.

9 thoughts on “Not the cleverest idea I\’ve ever seen”

  1. Slightly different, I know but it is reasonably common for people to take out loans to put their kids through private schooling.

    Especially for people who qualified for employer funding and then lose that for some reason (i.e. job moves back to UK).

  2. The main argument I’d make against it would be that helping people to fund childcare which is overpriced, but under-resourced, does little to deal with the problem that, well, childcare is overpriced and under-resourced.

    One presumes that property costs and regulatory burdens are a problem here, but there must be more to it.

    However, let’s not pretend that many parents are not already financing childcare via short and medium-term borrowing. This idea rather sounds like the student loan system.. which ensures universal access to funding and brings down the cost of borrowing by eliminating a lot of the credit risk (or, rather, nudging the risk elsewhere).

  3. @S E

    Agreed, but don’t think commercial loan providers would sign up to the repayment terms proposed by SMF…

  4. I don’t see how this works: after childcare finishes, the child has further and growing expenses, not to mention higher education, but income then is still paying off childcare from years ago.

  5. @CHF

    A response to that might be that if the parents had the mans to afford childcare then they would be able to return to employment and progress their careers in order to better meet those future costs.

    Plus, if we leave out higher education (where parental funding is entirely voluntary and students can raise their own finance) I can’t imagine that parents need spend such high proportions of income on their sexcrement at any other time. There’s nothing illogical about smoothing out that cost over a longer period.

  6. Difficuty is that a career can be limited by having other children, redundancy, unemployment, company goes bust etc. Someone who has a career as a office worker aged 25 may not have the same career, or even be working, at age 35. I’ve had 4 careers so far by time I was 40, current one is high stress (but great work) so odds are I won’t stay in it until retirement – still working on having kids.

  7. So Much For Subtlety

    If the parents default, does the bank get the sprog?

    I foresee an interesting market in derivatives and bundling these together to sell on.

  8. I can see a massive take-up by middle-class parents who will use the loan to reduce their mortgage payments. The nominal rate of 0.5% (when the continually unmet target for CPI is 2% implying RPI inflation of 3%) means that the value of the repayments are, when adjusted for inflation, around 10% less than the amount borrowed, whereas on secured mortgages, you pay back more in real terms and other unsecured lending interest rates are 10% and upwards.
    This is not a plan – it’s a call for a big hand-out to a selected group of people who are whingeing to the Grauniad.

Leave a Reply

Your email address will not be published. Required fields are marked *