The childcare change that could boost incomes and bring parents back to work

The childcare change that could boost incomes and bring parents back to work Almost half of parents using tax-free childcare say existing policies have not enabled them to reduce their levels of debt - Bookmark - CommentsGo to comments Become an Independent member to bookmark this article Already a member? Log in Reforming tax-free and universal credit childcare could boost household incomes and bring more parents back into work, according to new research. The research, carried out by the Early Education and Childcare Coalition (EECC) together with the Centre for Analysis of Social Exclusion (CASE) at LSE, comes as new polling suggests current schemes are not improving work opportunities for many families. The polling from the EECC and Survation found 41 per cent of parents using tax-free childcare and 46 per cent of parents enrolled in the universal credit childcare support initiative said that the schemes have not enabled them to work extra hours. Childcare support in England is spread across multiple strands including universal credit childcare support, tax-free childcare and the recently expanded 30-hour “working parent” entitlement. According to the research, 48 per cent of parents using tax-free childcare and 49 per cent of parents enrolled in the universal credit childcare support scheme say that the policies have not enabled them to reduce their levels of debt. One parent said: “I’m returning to work and having to put it on a credit card, but there’s a shortfall still… with that risk in mind… I’m potentially better off not going to work because I’m having to find money to pay for a nursery fee. “I think (it is) fantastic putting the children into nursery because it’s for their development. But it’s not made easy for us to be able to go back to work or find a job within the hours that you’re entitled to. It just makes things a lot harder than needs be.” The modelling of reform options seeks to address a series of “cliff edges” which weaken the incentive for parents to earn more, the report says. Families moving from universal credit childcare support to tax-free childcare can see the proportion of their childcare costs covered fall from 85 per cent to 20 per cent, while some parents in receipt of the 30 hours turn down additional work because the cost of childcare beyond their funded entitlement became unaffordable, the research suggests. The modelling considered several options including combining universal credit, tax-free childcare and the hourly entitlement into a single subsidy scheme that would be easier to navigate, incentivise work and boost household incomes. This analysis found that the option of combining universal credit childcare support and tax-free childcare into a single system with a smooth reduction in the level of support as earnings rise would: - Significantly improve work incentives, particularly for working families with around average earnings. - Substantially increase average disposable income for just more than a quarter (26 per cent) of working families, compared with a much smaller proportion (7 per cent) who would receive substantially less support. - Increase the average childcare support for the lowest income working families from 5.0 per cent of family income to 7.4 per cent and up to 13.6 per cent if the simpler and more accessible scheme improved take-up of the support. According to the research, more ambitious reforms would offer even greater benefits: - Switching to an hourly subsidy could achieve similar benefits at lower cost to the Government: the increase in subsidy costs for the Government is estimated to be 15 per cent for an hourly subsidy compared with 56 per cent for the smooth subsidy rate, the report says. - Bringing the 30 hours into the single scheme with a smooth rate of support would allow more help to be targeted to lower income working parents without substantial increase in the cost to Government: the average monthly value of the support could rise by more than £100 for those in the lowest income group within current Government spending, according to the research. Sarah Ronan, executive director of the Early Education and Childcare Coalition, said: “Childcare support should be an enabler of opportunity, not an obstacle to it, yet that’s the situation we have with the current system. “We know that government investment in childcare works and makes a difference for those who can access it, but as this research shows, it’s simply not reaching the people who would benefit the most. “That is holding back children, parents and the economy at a time of rising prices and low growth. “The Prime Minister recently spoke about focusing on the essentials we all need to live a good life, whether that’s water or transport. For parents, childcare is one of those essentials.” Dr Gillian Paull, at the Centre for the Analysis of Social Exclusion at the LSE, said: “The analysis in this report has a clear message that reshaping the structure of childcare support for working parents could enhance work incentives and income support for lower-income families without substantial increases in the cost for government. “Change would be a valuable investment: while there would be some costs to reforming the current collection of schemes, these are likely to be outweighed by the long-term benefits for families, the economy and society more broadly.” Ruth Talbot, senior policy and research manager at Save the Children, said: “Childcare is critical for children to learn and grow and for parents to work, but the system is failing some of the most vulnerable children. “This new research reflects what parents keep telling us – schemes such as the universal credit childcare element don’t work. The Government must simplify childcare support so that it works for all families, by removing upfront costs for those on low incomes.” A Department for Education spokesperson said: “Thanks to the work of this government, eligible working parents of children from nine months old are now able to access 30 hours a week and save an average of £8,000 a year per child. “This means more children are covered by funded hours than ever before, and through our Childcare Review, we are looking to make the system simpler and fairer for every family.” Join our commenting forum Join thought-provoking conversations, follow other Independent readers and see their replies Comments