Help with childcare for poorest must not be funded by cutting their support in other areas

Childcare is essential for working low-income families.

Last August, when the government published its consultation on tax-free childcare, JRF argued that the proposals failed to give enough help to low-income working families. We’re pleased to see that today’s proposals go further on this front - but it’s not all good news. Katie Schmuecker explains:

Childcare is essential for working families. Not only does good quality early years education and care help support child development, but affordable childcare enables parents to go out to work – or work more hours – supporting overall family incomes. As childcare costs have risen by 37% in the last five years, this is a crucial area.

The original proposals would have only given extra help to families in receipt of Universal Credit where both parents are earning enough to pay tax – meaning only about a third of low-income working families would benefit. Today’s proposals will mean all working families in receipt of Universal Credit will be entitled to help, with 85% of eligible childcare costs (an increase on the 70% currently available through tax credits).

So there’s the good news, but where’s the sting in the tail? It’s this line in the government’s statement:

“In line with the principles of the welfare cap, offsetting savings to fund this expansion will be found from within the Universal Credit programme. Further details will be set out at Autumn Statement.”

We will have to wait to see the detail, but it rather sounds like taking with one hand to give with the other.

If, in practice, this line means some people will receive greater help with their childcare, only by receiving less help with meeting their essential needs in another area, they’re not really any better off. Similarly, if it means the commitment is funded by cutting support to low-incomes families without children, it could exacerbate the rising rate of poverty among childless working age adults.

In our response to the original proposal, JRF argued that there was a case to look again at the balance of funding within this policy between those on low incomes and those with substantially higher incomes. Of the new money that has been found to help with childcare costs, £750million is being used to fund tax-free childcare for families with earnings below the additional rate tax threshold (meaning each parent could earn up to £150,000 in 2013/14). Only £200million will support the Universal Credit aspect of the policy.

Our research suggests reducing the cost of childcare for low-income working families will support more second earners (primarily women) to work, and increase the number of hours they’re able to work.

There is still a need to look again at the balance of funding within this policy. Additional help for childcare for low-income families should not be funded by cutting their support in other areas. Instead, any new money available should be tilted in their favour. This is more important than subsidising childcare for very high-earning families.

Read more on our work on poverty.