Research by the Resolution Foundation has found that government plans to offer up extra childcare support will benefit higher earners, but leave lower income families worse off.
In the budget earlier this year, the government announced new plans and a £1bn investment to help parents get back into work with extra childcare support. 600,000 families under the Universal Credit scheme will benefit from extra help, as well as 2.5 million higher earners benefitting through childcare support vouchers worth £1200 a year.
However, in a report called ‘All Work And No Pay’, the Resolution Foundation has found that the plans still may not benefit those on the lowest incomes, who also face the biggest barriers in getting into work. If one parent is already in full time low income work, and the other parent chooses to work, the childcare benefits do not provide as much help as for second parent in a higher earning family.
Using a comparison of a low income family and a higher earning family, the research said:
“A part-time cleaner with two children in childcare and working 25 hours a week would be £7 a week worse off than if she didn’t work at all while a part-time teacher with the same hours and childcare arrangements would be £57 a week better off under the Government’s new proposals to help working families with the costs of childcare.
“Higher earning families in universal credit will have 85 per cent of their childcare costs paid, while lower earning families will be able to recover only 70 per cent.”
Changes in benefits and income when a second lower income earner goes into full time work means that work does not pay. As families on low income wages may not meet the £10,000 threshold for paying tax, they must incur more of their childcare costs. Also, increasing hours means that low income families may become eligible for less, with some potentially losing out on thousands a year if the second earner is full time at 40 hours.
The research does highlight that lower income families are better off under Universal Credit if the second earner works 16 hours or less. But a shift from part time to full time will leave families working to pay, in contrast with the aims of government to encourage work, and making work pay.
Below are the comparisons of income with increasing hours for the two families described above, demonstrating the problems facing lower income earners should they choose to work more:
As the government open up the policies to consultation, the Resolution Foundation suggest that some amendments need to be made to the policies. While the added help for parents is welcomed, to achieve the government’s aims, they must ensure that work does pay for those facing the biggest barriers and challenges in entering the jobs market.
The Resolution Foundation has suggested that the 85% support should be offered to all families under universal credit, not just higher earners. This would require extra funding of £200m, which could be recovered by lowering the cap for claiming the £1200 childcare vouchers. These vouchers will be available to anyone not under universal credit, earning up to £300,000 a household (£150,000 each parent). By lowering this cap, the Resolution Foundation suggests it will be easier to help those worst off, and ensure the £1bn investment does make work pay, adding that the 900,000 families under Universal Credit that would not otherwise be eligible, will also benefit.