Working parents hit living standards ceiling due to high childcare costs

20th Jul 2016

As the six-week summer holidays get underway, new research from the independent Joseph Rowntree Foundation (JRF) highlights the impact the prohibitive cost of childcare has on parents’ ability to make ends meet and care for their children, even taking into account the rise in the National Living Wage.

JRF is calling on the Government to undertake a radical overhaul of the childcare system to make it easier for families to balance earning and caring, and improve the quality and affordability.

  • Costs leave working couples £2,600 a year short of decent living standard
  • Childcare provision needs ‘fundamental reform’ to offer high quality provision spanning summer holidays and the working day
  • Research shows weekly budgets for food, clothes and family activities

The findings emerge from JRF’s annual Minimum Income Standard (MIS) research, carried out by the Centre for Research in Social Policy at Loughborough University. It is based on what members of the public think people need to achieve a decent living standard. A full breakdown of weekly budgets is available in the Notes to Editors.

The research shows that to meet what the public consider a minimum standard:

  • A couple with two children needs to earn at least £18,900 a year each.
  • A lone parent with one child needs to earn £27,900.
  • A single person without children needs to earn £17,100 a year.

The research found that although some necessities like food and fuel have become cheaper in the past two years, one of the most significant barriers to reaching a decent standard of living for working families is the cost of childcare. Parents on low incomes who have to pay for childcare are often unable to find arrangements that leave them financially better off.

The balance between working and caring is shown in the difficultly reaching the Minimum Income Standard if parents do try to increase their earnings. Even with the National Living Wage of £7.20 an hour, working full time does not get you to a minimum standard of living if you have to pay for full time childcare:

  • For a couple with two children aged 4 and 7, full-time work by both parents gives disposable income of £382 a week after paying rent and childcare. This is £50 a week or 12% short of the minimum budget of £432 that they require: a shortfall of £2,600 a year.
  • A lone parent in the same situation ends up with £299 a week, £55 a week or 18% short of the £354 they require: a shortfall of £2,860 a year.
  • If childcare costs were covered in full, the couple family would have £446, £14 more than the minimum required. The lone parent would have £317, still short of what they need, but the deficit would shrink by a third, to £37 a week.

As part of its strategy to solve poverty in the UK being launched in September, JRF recommends that childcare undergoes radical reform. This involves:

  • Building on the Government’s existing free childcare offer (15 hours for 3 and 4 year olds) by making the free hours entitlement available for 48 rather than 38 weeks of the year and across the full working day.
  • Make childcare free to families on the lowest incomes, with costs capped at 10 per cent of disposable income for those with low to middle incomes.
  • Increasing the quality of childcare to support child development, by increasing investment to 0.85 per cent of GDP, up from allocated childcare spending of approximately 0.48 per cent in 2017/18 and moving to a graduate-led system of childcare workers.

Parents emphasise the importance of choice in childcare options, according to the MIS research. They agreed that families with young children should have the choice of nursery provision as an alternative to a childminder. 

Separate research for JRF showing the experiences of families on low incomes highlighted the significant of school holiday cover. Those who did not have relations such as grandparents to cover the school holidays found it hard to sustain a job before their children reached secondary school age.

Julia Unwin, Chief Executive of JRF, said:

“The cost and difficulty in balancing work and caring is felt by all families, especially as the summer holidays get underway. But for parents earning low wages, the choice is even starker: struggle to make ends meet and sacrifice family time, or suffer an even lower living standard from working fewer hours.

“Childcare has become the one of the biggest barriers to reaching a decent living standard in modern Britain. Work should always be the best route to a better life, but these figures show that a comprehensive plan to bring down the high cost of childcare, and improve the returns from working more hours, is desperately needed.

“Having promoted greater access to childcare, the Government now faces the challenge of ensuring that it truly becomes affordable and available to help ease the strain on parents’ juggling working and caring. A radical overhaul is needed.”

Abigail Davis from the Centre for Research in Social Policy, who led the research, said:

“Our research shows some of the ups and downs that families are currently facing in making ends meet. There have been welcome falls in some costs like food and fuel. In generally tough times, parents are finding new ways of getting good deals to help meet their needs on a tight budget. But they also emphasise new pressures that put some costs up. They increasingly recognise the importance to their children’s future of getting the right kind of childcare before school age, and of taking part in enriching after-school activities later on.”