Government's plans for childcare help 'benefit low-paid working families least'

A cleaner on the minimum wage would lose out by working while a teacher could be £57 better off under the government’s new childcare plans, according to a new analysis.

The Resolution Foundation thinktank warns that the coalition’s proposed additional support for childcare will benefit higher-paid second earners and their families far more than those who are low paid.

The research shows that a teacher on £11.50 an hour with two children in childcare would be £57 a week better off if she worked 25 hours a week than if she did not work at all. By contrast, a cleaner with two young children in childcare earning the minimum wage would be £7 a week worse off if she worked 25 hours a week than if she did not work at all.

Chancellor George Osborne has announced the government will spend an extra £1bn a year on two types of childcare support. About 600,000 working families receiving financial assistance through universal credit may be potentially eligible for extra childcare support from 2016, in which they can claim back 85% of their costs. A further 2.5 million higher income families not eligible for benefits will be able to claim tax-free childcare through vouchers worth up to £1,200 a year per child from 2015.

Extra help will be only for families on universal credit in which all adults earn above the income tax threshold – expected to be £10,000 in 2016.

The Resolution Foundation believes 900,000 working families will miss out on extra help with childcare because all the adults in the family do not earn enough to pay income tax. Low-paid second earners will be no better off if they move from part-time to full-time work, despite the government’s intention to make work pay.

Giselle Cory, senior analyst at the Resolution Foundation, said: “It’s neither fair nor logical if someone on a low wage, such as a cleaner, who wants to boost the family income by taking on more work gets less help with that than a higher earner, such as a teacher.

“The new support for the high costs of childcare is very welcome and millions of families will be better off as a result of the scheme. However, the people it helps the least are the very people for whom the cost of childcare is the biggest disincentive to work.”

“It’s vital that the government acts to correct this anomaly by paying the higher rate of childcare support under universal credit to all working families, no matter how low-paid, even if this means reducing the generous support to relatively high earners who qualify for the tax-free voucher scheme.”

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Government's plans for childcare help 'benefit low-paid working families least'
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