'Extortionate' childcare costs could
derail moves to 'make work pay', report
The soaring cost of childcare is threatening to undermine the
Government’s attempts to “make work pay”, a think-tank with
links to the Tories warns.
Parents with more than two children could be worse off going out to work
than staying at home, even under the work and pensions secretary Iain
Duncan Smith’s overhaul of benefits, it finds.
Some parents could be up to £1.06 an hour poorer than they would be on
benefits after “extortionate” childcare costs take effect, it calculates.
In some cases it could soon even be cheaper for the Government to pay
parents the minimum wage to stay at home and look after their children than
to work, it predicts.
The warning is contained in a report by the Centre for Social Justice, the
think-tank founded by Mr Duncan Smith while in opposition.
The group first devised the idea of the Universal Credit, Mr Duncan Smith's
plan to simplify all benefits while building in incentives to wean people off
But it now believes that unless the Government helps reduce
childcare costs, it will fail to make it “economically worthwhile” for
parents in low paid jobs to work at all.
The report calls for the Government to act to rein in red tape which
has helped drive up the costs carried by childminders and nurseries,
which have then been passed on to parents.
In particular it suggests a “modest relaxation” of the legal ratios of
staff to children at peak periods to reduce the losses some operators
are experiencing and enable them to take more children.
It is also calling for efforts to help parents form informal child-minding
networks to avoid the cost of expensive care altogether.
Recent polling by the website Mumsnet found that for many families
the cost of childcare has overtaken their mortgage as their biggest
Government research also showed that prices for nurseries
childminders and playgroups have all risen far in excess of inflation in
the last year.
According to the CSJ, the average cost of childcare in London is
£5.06 an hour – almost two thirds of the national minimum wage - but
in many cases it is far higher.
Britain has some of the highest childcare costs in the developed
world despite also having some of the highest levels of subsidy.
Next year the taxpayer will spend £2.3 billion subsidizing childcare
through the benefits system – not counting a range of other
incentives such as childcare vouchers received by working parents.
But Christian Guy, director of the CSJ, warned: “Throwing more
money at ballooning subsidies are unlikely to be the best use of
public funds, what we need a sensible and thoughtful policy change.
“Helping parents to avoid the cost of childcare all together – for
example, by fostering informal childcare networks, encouraging
childminding circles and helping parents to work during school hours
– would be hugely beneficial.
“Another challenge facing ministers is to drive down costs so that
more parents are better off if they take a job.”
David Cameron has already signalled support for ideas such as
forcing schools to stay open until 8pm to help working parents.
Under the new Universal Credit, parents who go out to work will still
get up to 70 per cent of the cost of their childcare met by the state
and keep a small proportion of the benefits they were previously
The idea is to give people an incentive to work
But the report finds that while the new system does ensure that “work
pays” for people on low incomes with one child, the claim becomes
“tenuous” for those with two or more children because of the cost of
It gives the example of a single parent earning the minimum wage
who has already earned enough money to start paying income tax.
Even after losing most of the benefits they were previously receiving
they would still be £2.17 an hour better off in work than at home.
But that figure would be halved if they had one child in nursery care,
and slashed to just 2p an hour if they had two. With three nursery
age children they would be losing £1.06 for every hour they worked.
If their children were already school age but receiving after-school
care they would be 17p an hour worse off working, the report
“Work is the principal route out of poverty," it concludes.
“But extortionate childcare costs are a major barrier in getting people
into work and underline why this Government’s welfare reform is so
“The next phase in this journey must be a more detailed review of
high childcare costs.”
A DWP Spokesman said: “Rising childcare costs are a concern for
all families including benefit claimants, and that's why we set up the
Childcare Commission and tasked it with finding solutions to this
"Universal Credit will target £300 million in childcare support to
working households, so that 80,000 more families will be able to get
into work and clearly see the benefits of working."