High cost of childcare cancels out benefits of working longer hours

According to a new report by Loughborough University on behalf of the Child Poverty Action Group (CPAG) and the charity Trust for London, the cost of childcare in London means parents on the minimum wage are no better off, or in some cases even worse off, working more hours.

According to Children in London - extra costs, a parent with one child in London earning the minimum wage would be around £4 a week worse off if they increased their working hours from 32 to 33 hours, because of high childcare costs.

In comparison, a parent in the same situation but living outside London, would gain 62p currently, or £1.16 under Universal Credit, from April 2016.

The report says that in London childcare can cost 50 per cent more than elsewhere in the UK. This means that for parents receiving tax credits, moving to Universal Credit next year, the cap on childcare support has ‘crucial implications’ for the ability of London families to improve their living standards by working.

It warns that families in the capital requiring more than 30 hours of daycare will hit the cap on childcare support, meaning that an additional hour of care would need to be entirely self-funded.

 The report argues that this creates a ‘heavy net loss’, and makes it counterproductive for parents to increase their hours if this requires extra childcare.

Without a higher cap, it says families in London with children on low earnings will be prevented from working full-time, even though a full-time wage may be needed to address the high-cost of living in the capital.

The report says that in outer London, the arrival of a first child typically adds £50 a week in private sector rent for a couple, as opposed to around a £20 a week in other parts of the country.

Alison Garnham, chief executive of Child Poverty Action Group (CPAG), said, ‘Our research shows it is an uphill struggle for London parents on a low wage to improve their family income. They’re up against sky-high housing costs but if they work more hours to pay the rent they’re often no better off because they’re clobbered by childcare costs.

'Parents in the capital want to build a life with prospects for their kids. As a would-be champion of working families the Government should not be allowing childcare costs to hold them back. It must commit to providing free childcare for pre-school children for every family that needs it.’

Author of the report Donald Hirsch said, ‘This report makes it clear that for life to be affordable to Londoners on modest incomes, they need a lot of help paying for expensive housing and childcare.

'Some measures being taken by the Government will help: universal credit potentially extends housing support to more families and increases the rate at which childcare fees can be reimbursed. However, at the same time, a range of other cuts in support will hit London families hardest, because they cap support both for working families with high childcare costs and for out-of-work families with high housing costs.

'To make work pay for London parents, and enable them to take advantage of better wages to cover more of their family costs themselves, the ten-year freeze on the cap in childcare support will need to be lifted.’