Making Work Pay – The Childcare Trap[1]
The next stage of parenting policy must recognise the impact of childcare costs on families. We want to see high-quality and affordable childcare more widely-available. Parents in the UK face some of the highest childcare costs in the world. This affects their ability to work, train and study, as well as forcing families to make difficult financial choices. In spring 2011 Save the Children and Daycare Trust surveyed more than 4,000 parents to explore their views on access to childcare and the impact of childcare costs on family incomes and work incentives.
The impact of childcare costs on family finances and employment
The survey results showed that high childcare costs place considerable strain on most families and that 41% of respondents believed they were on a par with their mortgage or rent. The impact on family finances appeared to be greatest for those on low incomes. Eight out of ten parents living in severe poverty reported that cost was a barrier to accessing childcare; 61% had struggled meeting childcare costs compared with around a third of parents on higher incomes (37%). Parents in severe poverty were more likely to have cut back on food and household bills to pay for childcare costs than families on higher incomes and the cost of childcare had caused a third of parents in severe poverty to get into debt (compared to less than a quarter of parents living on higher incomes).
The survey also showed that high childcare costs were undermining the government’s laudable aim to make work pay by reducing the financial gains from employment for many families. The majority of respondents in severe poverty (58%) said they were no better-off working and paying for childcare, compared to just 19% of those with family incomes over £30,000. Due to difficulties accessing childcare a quarter of parents in severe poverty (who responded to the survey) had given up work, a third had turned down a job, and a quarter had not been able to take up education or training.
Finally the survey showed the challenges with high childcare costs faced by larger families. 59% of families with three or more children who took part in our survey said they had experienced difficulties with childcare costs; this drops to 42% of families with just one child. Families with three or more children were more than twice as likely to have cut back on after-school activities in order to meet childcare costs as those with one child.
Childcare costs, Working Tax Credit and the Universal Credit
In April 2011, the Coalition government reduced the amount of childcare costs that could be claimed through the childcare element of Working Tax Credit, so parents could only claim 70% (as opposed to 80%) of childcare costs. This will mean an average loss of over £500 per year for the half million families who receive this support, and up to £1,500 for families receiving the maximum help.
Under Universal Credit, which replaces many benefits and tax credits from 2013, funding for childcare will be maintained (at a fixed budget of £2 billion per annum by 2014 / 15) but eligibility will be extended to include parents working fewer than 16 hours per week. The inclusion of those engaged in mini-jobs is welcome, but it means that less help will be available to support parents working longer hours. The government’s decision on how to structure and fund childcare support under Universal Credit is therefore vital. Two options have been put forward - firstly continuing to cover 70% of childcare costs with maximum weekly limits of £125 for one child and £210 for two or more children; secondly covering 80% of costs with limits of £100 for one child and £150 for two or more children.
The poorest families would be affected most severely by both these options. Modelling from the Centre for Economic and Social Inclusion (August 2011), commissioned by Save the Children, shows that a single parent with two children working full-time on £15,000 per year and with childcare costs of £232.40 per week would be £59.49 worse off each week under Universal Credit (largely because of reductions in childcare support). Department for Work and Pensions modelling (2011) shows that more than a quarter of a million families will see their entitlement reduced under these options including many families who can currently receive up to 95.5% of childcare costs through housing benefit and council tax benefit.
Policy recommendations
The views of parents who responded to our survey suggest that in order to meet the goals of maximising family incomes, making work pay and in turn tackling child poverty, childcare must become more affordable to parents on the lowest incomes. We welcome the government’s recent announcement of £300 million to extend support for childcare costs to those working under 16 hours. They now need to ensure a minimum of 80% of childcare costs are covered under Universal Credit up to current weekly limits. Covering this level of support for those working more than 16 hours per week would cost an extra £405 million per annum. This would be an important step forward for parents and should be a key strand of family and parenting policy.
[1] Making Work Pay - The Childcare Trap: UK briefing is available at www.savethechildren.org.uk/en/50_protect-uk-childcare-support.htm
