Call for high earners to be 'stripped' of the 30 hours and Tax-Free Childcare

In their joint report, the Centre for Social Justice (CSJ) and Save the Children, say that 30 hours and TFC should be ‘stripped’ from high earners and the money used to raise the childcare element of universal credit (UC) from 85 per cent to 100 per cent of eligible costs, supporting low-income families. The cost of funding this proposal would be around £100 million.

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The report estimates that lowering the threshold for 30 hours and TFC from £100,000 (the current threshold) to £60,000 per person would produce savings of £158 million (see table below).

Source: Centre for Social Justice and Save the Children

The report, A Bright Start: Improving childcare for disadvantaged families through universal credit, says that lack of affordable childcare is still the number one barrier to employment for parents in England. Increasing childcare support under UC, it claims, would go some way to addressing this and mitigating the ‘high marginal costs’ parents incur when returning to work or increasing their hours.

According to the CSJ and Save the Children, under UC the benefits parents lose as their incomes increase can be ‘eye-wateringly high’, which reduces the incentive for them to work or increase their working hours.

They say that even after the increase to working allowances under UC, announced in the Budget, a second earner with one child who moves into part-time work at the minimum wage will keep just under a third (32 per cent) of their hourly wages, or £2.60 per hour. A lone parent with one child working full-time will keep less than two-fifths (39 per cent) of their hourly earnings, or £3.24 an hour.

Under the new, ‘more generous’ system proposed by the CSJ and Save the Children, this would rise to 40 per cent, or £3.30 an hour, for the second earner and to 48 per cent for the lone parent (as above).

The report also urges the Government to consider paying childcare bills a month ahead, where this had been agreed with the provider, to help parents struggling with the requirement under UC to pay childcare costs upfront and then claim them back in arrears.

Complex system

However, the CSJ and Save the Children claim that cost isn’t the only factor contributing to the low take-up of childcare support, another issue is the complexity of the system.

Separate research, conducted by NatCen for the report, reveals confusion among parents about what support is available, the eligibility requirements and how increasing working hours could affect their entitlement.

For example, it highlights that there are currently seven different ways in which parents can claim support in England, all with different eligibility criteria and rules about how you can claim and how it is paid.

The CSJ and Save the Children report calls for a more coherent and joined-up approach to information and advice to parents about what forms of support are available and better training for work coaches on the childcare element of universal credit, as well as other childcare offers.

Steven McIntosh, director of UK poverty policy, advocacy and campaigns for Save the Children, said, ‘It’s simply not right that the highest earners get support for childcare costs, while families on low incomes are struggling to afford childcare. By focussing help with childcare bills on those most in need, the Government could make a powerful offer to struggling parents – if you’re returning to work on the lowest wages, universal credit will cover all your childcare costs’.

Andy Cook, chief executive of the Centre for Social Justice, added, ‘Every penny invested in universal credit goes straight to those who need it most. It is also a system designed to make sure work always pays. By increasing the childcare allowance under universal credit, those who are currently disincentivised to move into work would no longer face that barrier. It is fair that money otherwise going to couples with a joint income of £200,000 should be invested in the country’s most disadvantaged.’

Sector response

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said, ‘The issue of universal credit is a vital one that could cause serious cash flow problems for parents and nurseries. We have put this case to MPs who are investigating the roll-out of this policy.

‘This report shows the barriers facing parents in trying to access high-quality childcare but also the clear need to simplify the system.

‘NDNA believes that a Childcare Passport, where all childcare funding support follows the child to the parent’s provider of choice, is the best and most efficient way to deliver the Government’s childcare offer.’

Megan Jarvie, head of Coram Family and Childcare, said,‘The Centre for Social Justice and Save the Children are right to call on Government to do more to support low income families with their childcare costs.

‘More generous support for childcare through Universal Credit would reach the families that need it most and should be a priority.’

Shadow education secretary Angela Rayner said, ‘Under the Tories it is the families who most need help with childcare who are unable to access it. Those on the lowest incomes cannot access 30 hours of free childcare and face thousands of pounds in up front bills to access childcare through Universal Credit. 

‘There is simply no justification for those families that most need this support being locked out of the system. This simply entrenches inequality, makes it harder for children to succeed, and leaves parents, mostly mothers, unable to return to work.’

A Department for Education spokesperson said, 'This Government is doing more than any before to support parents with the cost of childcare. Our Providers Survey shows that the majority of providers with 3-4 year-olds are offering 30 hours and the independent evaluation of its first year also showed that it’s making a real difference to family life – with 78 per cent parents reporting they had more money to spend.

'We are investing record amounts – around £6 billion a year on childcare support by 2020. This includes around £3.5 billion which we plan to spend this year alone on all our free early education offers – to make sure as many children as possible have access to high-quality care.'

• The report is available here