EXCERPTS:
The government's decision to spend nearly £1bn on childcare in the budget is welcome. With some of the most expensive childcare in the world, making work pay after childcare costs is a real challenge for many parents. But the government's claim to be offering universal support ignores the fact that well-off families on up to £300,000 will be entitled to help under last week's proposals, while some of the poorest working families don't receive any new support. This does not meet any commonly understood definition of universality.
Under the government's proposals, a new tax-free childcare voucher worth up to £1,200 per child will be available to families who are not eligible for universal credit as long as all parents in the household work. This is a clear improvement on the lottery of the current childcare voucher system, which is only available to those whose employers choose to offer it. Universal credit will cover almost half of all families with children, overwhelmingly those on low to middle incomes. This means that the voucher will largely be for better-off parents. In fact, 80% of families who will be eligible for the voucher are in the top half of the income distribution and three-quarters of the new money available for childcare will go to them. Only the very richest will be excluded.
For some families in the bottom half, extra support was also announced in the form of an improvement to the universal credit. Instead of claiming back 70% of their childcare costs, families in which both parents work and earn enough to pay income tax will be able to claim back 85% of their costs. This will be a major improvement: it will halve childcare costs for up to 600,000 families. However, most of the beneficiaries will be middle-income. By contrast, 900,000 of the poorest working families on universal credit will miss out on this extra childcare support because they include someone who does not earn enough to pay income tax - mainly part-time workers on low pay. A fifth of these families will be better off under universal credit because they will be entitled to the basic level of childcare support that under today's working tax credit only goes to those working more than 16 hours. That's good news.
However, almost half of families with children in universal credit will miss out entirely on any new childcare support. And these are the very families for whom childcare presents the biggest barrier to work. Under today's system a second earner receiving the minimum wage with a partner also on low pay is only £4 better off a week if he or she works 25 hours rather than not at all. Increasing childcare support to 85% would help make work pay.
But under the current proposals, these families will be excluded. That's an extraordinary decision.
The overall result of these changes is a complex three-tier system: an improved voucher system for largely better-off families; a more generous tax credit system for families with two earners both paying tax; but no improvement for many of the poorest working families.
The government intends to consult on its childcare proposals before they are introduced in 2015. This provides opportunity to rethink the targeting of support under universal credit. New money should be found - or taken from the voucher scheme aimed at the better off - to ensure that work also pays for low earners who work part-time. They've been overlooked. The government can and must put this right. The author is deputy chief executive of the Resolution Foundation thinktank
-reprinted from the Guardian