Better-off families gain £300 a month more than poor families from Government childcare policies

The Family and Childcare Trust has put together figures on the winners and losers of the new childcare schemes, ahead of the All-Party Parliamentary group on Families in the Early Years, which meets today (23 April).

The research shows that two parents earning the minimum wage and working full-time with a three-year-old are just £55 month better off using the 30 hours scheme and Tax-Free Childcare to pay towards childcare, compared to a high-earning couple working the same hours, who stand to save £351 a month.

The new research follows exclusive analysis by the Resolution Foundation for Nursery World that found that the Government’s 30 hours policy would save some of the poorest households £5 per week, while the richest would gain ten times that.

Despite the Government saying the 30 hours of ‘free’ childcare saves up to 390,000 families around £5,000 per year per child, our analysis also showed that the maximum gains are only made by higher earners, with families with gross earnings of £40,000 to £50,000 gaining the most.

MPs will discuss the impact of Tax-Free Childcare and the 30 hours on family incomes, after parents pay for housing and childcare. The APPG will also hear from Nicky Morgan, chair of the Treasury select committee, on the findings from its inquiry into the roll-out of Tax-Free Childcare and the wider childcare system.

The Family and Childcare Trust research looked at how Tax-Free Childcare and the 30 hours affected the monthly incomes (after childcare and housing costs were taken into account) for families on low, average, or higher incomes with a three-year-old,  either working part-time (three days a week), or full-time (five days a week).

A couple on higher incomes both working full-time and using Tax-Free Childcare and the 30 hours stood to gain the most, saving £351 a month. If one parent worked full-time and one part-time, the higher-earning couple gained £269 a month.

Families on median incomes stood to gain the same savings as those on higher incomes.

However, families on low-incomes, with both parents working full-time would save just £55 a month, and if one worked full-time, and one part-time, they would be just £37 a month better-off.

Single parent families on low-incomes would only save £37 a month working part-time, and just £55 a month working full-time.

The research was compiled on the basis that families were paying average childcare costs for England and £573 per month in rent.

Calculations were based on parents working a 7-hour day, and requiring 10 hours of childcare per day to allow for travel to work and lunch break.

The assumption was made that parents would use their 30-hour or 15-hour entitlement as a ‘stretched offer’ over 48 weeks a year and that parents on benefits were using Universal Credit rather than Tax Credits.

Incomes were calculated based on minimum income at £7.83 per hour (National Minimum Wage for over 25s); median income at £15.71 per hour (ONS data on median earnings); and higher income at £25.46 per hour (threshold for paying higher rate income tax based on working a 35-hour week).

Ellen Broomé, chief executive at the Family and Childcare Trust, said, ‘Childcare is as vital as the rails and roads - it supports parents to work, boosts children’s outcomes and provides our economy with a reliable workforce. Recent investment in childcare is welcome, and popular with the families who are benefiting. But we need to make sure that support is reaching the families that need it most – particularly the lowest income families or those with very young children who face the highest costs with the least support. While better off families will be feeling the benefit of new investments, lower income families might find that they end up paying to work more hours.’

Lucy Powell MP, chair of the APPG for Families in the Early Years said, ‘Any investment that helps parents, particularly mothers, to work or to work more hours is welcome, but we mustn’t forget that early education and care is also vital to boost school readiness and narrow the development gap that exists between poorer children and their peers pre-school. With new investment so heavily weighted to already advantaged families, it is vital that ministers level the playing field and redouble their efforts to boost social mobility in the early years.’

Purnima Tanuku, chief executive of National Day Nurseries Association, said, 'Childcare policy must put children at its heart and benefit all families, especially those who need it most.

'The Government must make sure its childcare policy balances the needs of all families and the savings are shared out fairly. The difference between the lowest paid families and high earners per year is as much as £3,500 per year, which is too big a gap.

'NDNA has been saying that 30 hours of funded childcare must not have a negative impact on existing schemes to support children from disadvantaged backgrounds.

'Chairman of the Education Select Committee Robert Halfon MP has been mooting the idea of reducing the earnings threshold to be eligible for 30 hours. This would be an effective way of freeing up money to make it more widely available for non-working families if the Government cannot invest more money into the scheme otherwise.

'If this policy can support parents and children of disadvantaged families so they are better off and have the best start in life, that’s the way to break the spiral of poverty and unemployment. This policy must support them.'

The Department for Education said that while the money that higher earning couples save compared to a single parent on low income is higher, when compared to overall income the levels of savings from using Tax-Free Childcare and the 30 hours are proportionately similar.
 
Minister for children and families, Nadhim Zahawi, said, 'Latest figures show that 294,000 children are now benefiting from our 30 hours’ free childcare offer, saving hardworking parents around £5,000 per child per year and giving them extra cash in their pockets. This offer is above and beyond the 15 hours’ free childcare available for all three- and four- year olds and disadvantaged two-year-olds.

'We want every child to get the best start in life and we are making excellent progress in our mission to help as many families as possible access high-quality and affordable early education and childcare.'