From the TUC

More childcare cuts under Universal Credit?

23 May 2011, by in Society & Welfare

The Government has already cut childcare support for working familes. Since April households claiming the childcare element of Working Tax Credit have seen their award fall by up to £30 a week, a cut that, as our Tax Credit calculator shows, is one of the largest to hit working families to date. And it seems that worse is on its way. Despite the DWP’s insistence that there will be ‘no losers‘ under Universal Credit in practice all that is being offered is cash protection (not inflation linked) at the point of transition, which will be lost as soon as there is a ‘change’ in household circumstances. For those who apply for support with childcare after UC has been introduced it is, as we have previously reported, increasingly likely that many will find even less help is available.

Today’s new Gingerbread research sets out what we know about UC to date: the same amount of money will be available to a larger number of families (those working less than 16 hours as well as those working more). It then models what this could mean for single parents. The finding – a significant cut. Tax Credits currently work by providing parents with up to 70 per cent (from April 2011, under the previous Government 80 per cent of costs were met) of their childcare costs. Costs up to a maximum of £300 a week are considered for households with two or more children and up to £175 a week for households with one child. This means that in practice a larger household (where a single parent or both parents in a couple work 16 hours or more) can claim up to £210 a week in childcare costs, or £122.50 a week if the household only has one child.

If childcare costs are to be met for parents working under 16 hours, with no more money being put into the system, the inevitable result is that less cash will be available. Gingerbread’s modelling shows what this could mean – under the most likely scenario the maximum amounts that households could have each week will fall to £136 a week for families with two children or more and to £80 a week for household with one child.

This decision would be extremely political. It would mean that childcare was being prioritised for parents with older children (whose costs are lower as they need fewer hours of childcare as their children are in school and as out of school care is cheaper than nursey care for babies) rather than those with younger toddlers and babies. It would also mean that for low to middle earning adults with childcare repsonsibilities full-time work would become near impossible, and that for single parents, particularly those in areas where childcare is expensive, work would hardly pay at all until their children were above school age and in cheaper daycare. The impact on women’s labour market participation rates would be likely to be significant. As the report concludes, the likely reductions could:

…put an even more severe cap on aspirations for those moving towards full-time employment. Having to foot all the extra cost of childcare once the limit was reached would in many cases mean that longer hours would leave families significantly worse off, in some cases falling back into poverty. Typically this would start happening when people worked more than between 22 and 28 hours a week, depending on hourly childcare costs. We have not modeled here the impact on families with significantly higher childcare costs, for example those with three or more children or those with a disabled child (where the cost of appropriate childcare is much higher), but the impact would clearly be more severe.

Although the Welfare Reform Bill is currently making its way through Parliament the DWP has yet to publicly acknowledge the reality of what its childcare policy is likely to mean for work incentives and for working families’ lives. But over the next few weeks details will inevitably emerge. At that point working families may be better able to judge whether the most ‘family friendly government ever‘ is living up to expectations.

2 Responses to More childcare cuts under Universal Credit?

  1. Low-paid public sector workers face cuts in net pay of up to 10 per cent | ToUChstone blog: A public policy blog from the TUC
    Jun 30th 2011, 9:33 am

    […] But with further increases in pension contributions proposed for 2013/14 and 2014/15 times, and tax credit cuts, particularly for working parents using childcare, continuing to take effect times will still feel […]