Low-income families to be hit by rising childcare costs

Katy Morton
Monday, November 28, 2011

Low-income families in 2015 will have to find over 60 per cent more of their own money to pay for childcare compared with 2006, according to new research.

The report by the Social Market Foundation (SMF) estimates that in four years time low-income families can expect to pay almost 62 per cent more, around £600 per year, than they did in 2006 for the same amount of childcare.

Low-income families are defined as those receiving tax credits with an annual income between £15,000 to £37,000; a middle-income household would have an annual income between £42,000 and £63,000; and figures for a high-income household are based on a couple earning more than £63,000 (based on one earner in the couple paying the higher rate of income tax).

Incomes are based on the main earner working full-time and the second earner working part-time hours, earning half the amount of the full-time worker.

For a family with an income of £20,000 a year and spending £94.43 per week on childcare, the typical childcare cost claimed through working tax credits, this would take the proportion of their income spent on childcare to almost 8 per cent, up from just 4.8 per cent in 2006.

Figures from the report, The Parent Trap, are based on future projections of the cost of childcare. Authors compared the changing level of financial support and the rising cost of formal childcare between 2006, the peak of public financial support for childcare, and 2015.

The SMF used the Daycare Trust’s annual survey of childcare costs to calculate an average childcare inflation rate since 2006/07, which is 4.4 per cent.

It is the first time all different forms of childcare have been analysed together with a projection of the future costs of childcare.

Middle earners in 2015, families with a joint income of between £42,000 and £63,000 are likely to pay 25 per cent more, £900 a year, for childcare than in 2006.

 Families with an income of more than £63,000, a high-income household, could pay around 42 per cent more in four years time, or £1,400 per year, for childcare compared to 2006.

According to the SMF’s report, if underlying costs continue to rise as they have done in ‘recent years’, the costs of a typical amount of childcare will be £104.16 per week in today’s money, a 13.5 per cent rise on 2006.

To return to the same level of childcare support in 2006 the authors estimate that the proportion of childcare costs covered in the new Universal Credit would have to increase to 82.4 per cent from the current level of 20 per cent. They also claim that the value of childcare vouchers would need to rise to £83 per week from £55 for basic rate tax payers.

Ian Mulheirn, one of the authors of the report, said, ‘Paying for high quality formal childcare is already a struggle for many parents, and affordability has been declining since 2006. But the triple whammy of the ever increasing ‘ticket price’ for childcare, cuts to childcare support in the tax credit system, and the freeze in the value of childcare vouchers risks making formal childcare a luxury that many families will no longer be able to afford.

‘This will put parents in an impossible position, forcing many to choose between going to work and incurring a large childcare bill, or staying at home. As well as having a detrimental impact on family budgets and on the labour market, these trends will price the poorest children out of the considerable social and educational benefits offered by quality formal childcare.’

  • Read SMF researcher Ryan Shorthouse's article on why we need action to prevent childcare becoming unaffordable

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