The think tank sets out for the first time the challenges facing low to middle income households and how the benefits of a period of economic growth could by pass millions.
Low to middle-income households are defined as those earning below median income and who are largely independent of state support. Typical incomes vary from around £12,000 to £30,000 a year for a couple with no children, and £19,000 to £47,000 for a family with three children.
Written by the Commission on Living Standards, a group made up of employers, trade unionists, economists and heads of parents’ groups in partnership with the Resolution Foundation, the report makes a number of suggestions to boost low pay, raise skills and increase female employment, which it says could see a typical family £1,600 better off a year by 2020.
To boost employment among low to middle-income households, the report proposes expanding the provision of childcare from 15 to 25 hours a week, and for 47 weeks a year rather than 38. It suggests parents would be charged £1 an hour for the additional 10 hours a week on top of the 15 hour free entitlement, effectively providing three days of childcare for just £10.
The report estimates that it would cost the Government £2.3 billion to subsidise the extra hours, but says that in reality it could be much less, as the Government would recoup the cost through the tax system because more second-earners would be working.
It says, 'Because many of the families who would benefit from this are already claiming the childcare element of Working Tax Credit (which will broadly remain the case under Universal Credit), the Government would save around £200 million in tax credit spend, reducing the net cost to around £2.1 billion. This does not account for any of the additional tax revenue that would be expected as more parents entered work. It is therefore a worst case scenario and it is highly likely that this figure considerably overstates the true net cost the Treasury would face.'
The Commission on Living Standards also recommends making the benefit and tax system do more to support employment and reduce the burden of unfair taxes.
Their proposals include:
- Making Universal Credit 'friendly' to second earners by treating them as generously as main earners. This would see second earners earn around £2,000 before Universal Credit starts to be withdrawn, rather than face a 65 per cent tax rate from the first pound they earn.
- Increase child tax credit for parents of pre-school aged children and reduce it for parents of older children, recognising that parents tend to want to return to work as children get older.
The report also suggests addressing low pay more generally by introducing a non mandatory ‘affordable wage’, which it says would assess the wage rate that each of the main sectors could afford to pay above minimum wage. Another idea is to force publicly-listed firms to publish the proportion of their staff paid below the Living Wage.
To fund their recommendations, the Commission suggests tightening tax relief for the most affluent and means testing the universal winter fuel allowances and television licences for pensioners, along with extending National Insurance contributions to those working beyond the state pension age.
Sally Russell, a member of the commission and director of Netmums, said, ‘Much of the rise in living standards in the past 40 years came from more women working. These personal choices are now being curtailed by the very high costs of childcare, which is stopping many women from returning to work or forcing them into lower skilled, part-time roles, meaning families cannot increase their incomes. The extra support for childcare that we recommend would help to ensure that work pays for parents.’