Childcare double whammy: help is cut as costs soar

With rising prices and stagnating wages, there couldn’t be a worse time for working families to have their support for childcare cut, writes Felicity Dennistoun.

By the Resolution Foundation’s Felicity Dennistoun

The survey (pdf) published yesterday by the Daycare Trust and Save the Children was a stark reminder of the soaring costs of childcare and the impact they are having on family budgets. Fifty eight per cent of parents in severe poverty said they were no better off working once they’d paid for childcare; 41% said they were considering giving up work due to the reduction of the childcare element of the Working Tax Credit.

These findings not only undermine the government’s pledge to ‘make work pay’, but highlight the effect of high childcare costs on the economy as a whole.

When childcare costs soar, working parents are left stuck between a rock and a hard place: either cut back in other areas or get into debt just to stay in work. Neither option bodes well for our economic recovery.

The effect of high childcare costs on employment is particularly worrying right now – and even more so for women. Eighty five per cent of second earners in the UK are women, and it is they who are most likely to leave their jobs or reduce their hours because work doesn’t pay.

The entrance of millions of women into the labour force has been a vital contributor to living standards for families in recent years. The lack of affordable childcare provision therefore has serious long-term consequences, as families struggle to deal with rising costs and stagnating wages.

And for the government, of course, those forced to leave their jobs or cut back on their hours represent lost revenue in income tax.

Yet despite these major worries, the government’s current plans may make things worse. In April this year the government reduced the amount families can claim towards childcare costs through the Working Tax Credit from 80 to 70 per cent.

This has already meant an average loss of £436, with some families losing as much as £1,300 a year. On current plans, though, the situation is set to get worse when Universal Credit is implemented in 2013.

Although for the first time parents working less than 16 hours a week will be entitled to support, the overall budget for childcare will stay the same; in other words, there’ll be the same amount of money, spread between more people.

That means parents who already receive the benefit will lose out. In May the Resolution Foundation published Childcare Support and the Hours Trap (pdf), which reveals the full extent of the problem: a single parent on the minimum wage would have just £3 a week more in her purse if she decided to increase from 3 days to 4 days of work.

With rising prices and stagnating wages, there couldn’t be a worse time for working families to have their support for childcare cut. When childcare costs soar and help is cut, we are leaving parents without the means to improve their own standards of living, and that of their children.

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