The government’s mixed message on childcare for low-income parents
It is a truth universally acknowledged that the UK has some of the highest childcare costs in the developed world, and that these act as a significant disincentive for parents who want to work or increase their hours of employment. This barrier is clearly more significant for those on low-incomes who scrabble to pay the same high fees as better-off families from their much smaller budgets, and who have seen a cut in childcare support through tax credits from 80% to 70% of costs since 2011.
As a result, the decision this week to route an additional £200 million through universal credit (UC) to help families with childcare is, on the face of it, a welcome announcement. We know that higher levels of parental employment correlate with lower levels of child poverty, and that helping mums back to work is a particularly effective child poverty reduction strategy.
However, as always, the devil is in the detail.
Additional help with childcare costs over and above what is already on offer for low-income families will only be available through UC for those parents who work a sufficient number of hours to pay income tax. For those in low-paid jobs this is a high bar to hit, and one, of course, that has been raised even further after the chancellor’s announcement this week that the tax threshold will increase to £10,000 a year in 2014/15.
As a result, a lone parent will need to work over 31 hours a week at the national minimum wage to reach this threshold, and the same will be true for both partners in a couple. In effect, then, what the new scheme offers is extra help to parents who work all but full-time, while those who wish to start working again after having children, or to combine part-time work with their family commitments, receive no extra support.
In this, the government could stand accused of sending out a very mixed message to low-income parents. Under UC, lone parents and second earners will only be expected to work ‘reasonable school hours’ which net out across the year at around 20 hours a week. At minimum wage this would not put them in the taxable bracket, and hence these families would not be eligible for the new upper rate of childcare support.
From a child poverty perspective, this new arrangement is also far from ideal. The government’s poverty statistics tell us two interesting things in relation to numbers of hours worked: first, that the risk of poverty drops drastically once a parent enters work; and second, that couple families see another significant reduction in risk once they contain one-and-a-half earners. We also know from focus groups that low-income parents urgently want childcare to help them undertake training and improve their skills.
If the government is interested in reducing child poverty, then, this new, two-tier system has got the incentives in the wrong place. Rather than pushing poor parents to work ever longer hours (which, of course, may not even be available), we would most likely see bigger child-poverty pay-outs if higher levels of childcare support were focused on helping all parents enter work in the first place, and to progress to better paid jobs.
Alas, an evidence-based approach such as this seems to run counter to a worrying thread emerging from some quarters, that if you are not working ‘enough’ hours you are not really in poverty at all. But if the government is really keen to help hard-working families as it claims to be, it needs to find a more rational way of supporting all low-income parents with the ever-increasing costs of childcare.