Childcare costs ‘eroding work incentives’

High childcare costs mean that having a full-time job is no longer worthwhile for many second earners in families on middle and low incomes, according to the Resolution think-tank.  Its report calls for a major change in the childcare system to ensure work is always worthwhile.

Key points

  • In the most extreme case, a second earner working full-time at the statutory minimum rate can be left with just £211 out of her total annual wage after deducting childcare costs for two children and lost tax credits.
  • The problem also hits middle-income groups. A family with two children earning £44,440 a year before tax – and nominally £20,000 better off than a low-income family of the same size – see this financial advantage almost wiped out by childcare and lost tax credits. Although both families pay the same childcare costs, the lower-income family gets more than £11,000 in state support.
  • The UK has some of the most expensive childcare in the world. A couple on double the average wage and with two children spend 30 per cent of their disposable income on childcare, compared with the OECD average of just 12 per cent.
  • Growing employment among women has been vital in holding up household living standards over the last 30 years, as men’s employment income has declined. Affordable childcare can therefore be an essential tool in lifting incomes for those in the bottom half of the earnings range.
  • It makes 'little sense' to invest more in the current means-tested tax and benefit system for childcare, because of the strong incentives against work built into it. Instead, extra resources should be spent on a simpler system of highly affordable non-means-tested support.

Source: Vidhya Alakeson and Alex Hurrell, Counting the Costs of Childcare, Resolution Foundation
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