The Welfare Reform Bill that is currently weaving its way through Parliament presents an opportunity to fundamentally reform the way that families are supported with their childcare costs — particularly for low income families. The Bill will introduce the Universal Credit, which aims to simplify the benefit system and incentivise work, but it risks pushing families out of work and into poverty. Recent analysis from the Resolution Foundation and Gingerbread shows that some families could lose up 94p in the pound as they increase their working hours, shattering the Government's commitment to make work pay. This could mean that some parents decide not to work, or leave their jobs because of rising childcare costs and the withdrawal of Government support.
Drawing on research with parents who don't normally access childcare, IPPR's recent report Parents at the Centre argues that reforms to the tax credit and welfare systems should involve widening access to free and affordable childcare rather than narrowing it. In the short term, the Government should reconsider its decision to reduce support through the childcare element of the Working Tax Credit. The amount of support that low-income working families can claim from the tax credit system was cut from 80 per cent to 70 per cent in April.
The Government should also reconsider its decision to integrate the childcare element of the tax credit system into the new Universal Credit. While the principle of the Universal Credit is sound, the integration of childcare support into its architecture is likely to diminish the affordability of services for many families because of asset means-testing and other factors. Instead, the Government should consider a single, integrated funding system for childcare that merges tax credit provision and the tax relief provided for childcare vouchers. This single system should be designed to ensure support for all parents while offering the greatest amount of support to those on low incomes. It could function as a top-up in childcare support, additional to any universal entitlement to free part-time nursery places.
Childcare is part of the real costs of work and if the Universal Credit is going to provide the right incentives to make work pay, fundamental reform is required. The Government has indicated that they are ready to ‘listen' on key reform agendas such as the NHS — let's hope that they are willing to listen on this agenda as well.
Dalia Ben-Galim is Associate Director for Family, Community and Work at IPPR.