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Low-income parents ‘pay to return to work’

Rebecca Goodman
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Rebecca Goodman

Some lower-earning parents will lose money if they work more than 25 hours a week while paying childcare fees, research reveals.

While childcare fees impact all parents and carers, they disproportionately harm mothers’ earnings and economic security, according to a think tank.

The Institute for Public Policy Research (IPPR) said some parents are effectively paying to go to work as childcare fees, the Universal Credit taper, and income tax are creating a tax rate of over 100%.

It found some low earners will be financially worse off if they increase their hours and face an effective tax rate of up to 130% when they return to work after having a baby.

It said high upfront fees, a gap in funding between the end of parental leave and free hours being allocated, as well as a struggling childcare sector are to blame for the current situation.

The average cost of a part-time childcare setting is £138.70 a week or £7,210 a year. That’s more than double the average amount spent on food and drinks accord to the Coram Family and Childcare 2022 study.

The charity is calling for a childcare guarantee to replace the ‘complex and incomplete patchwork of childcare entitlements, benefits and allowances for working parents in England’ which currently exists.

Henry Parkes, IPPR senior economist and the report’s co-author, said: “Childcare in England isn’t working – for children, parents or providers – while soaring inflation is only making a bad situation worse.

“Costs are already the second highest in the developed world as the average family have to pay over £7,000 a year for just part-time care for a child under two.”

The schemes available to help parents were also criticised. The report highlighted the ‘minefield’ and ‘complete nightmare’ facing parents who have to navigate their way through seven different support schemes.

Four main issues in the childcare sector

The report identified four main problems with the current childcare sector in England.

The first is the state of the childcare market in England which the IPPR said is close to collapse due to the funding for free hours from the government failing to meet costs incurred by providers.

Neil Leitch, CEO of the Early Years Alliance, said: “Research conducted by the Alliance earlier this year found that an overwhelming majority of providers said the funding they receive for so-called ‘free childcare’ places is less than the cost of delivery and that even those settings that received funding increases this year said it wasn’t enough to cover delivery costs.

“Time and time again, the sector has urged the government to come up with a long-term plan that includes realistic funding, but these calls continue to fall on deaf ears. Now, as the situation is fast approaching a catastrophe, the government needs to stop sticking its head in the sand and start investing in our vital sector, before the damage becomes irreversible.”

The report also points out the gap in help from the end of parental leave to the time when children start receiving free childcare hours. Most parents go back to work at nine months but the majority won’t receive any support for childcare until their child is three and a half.

The high upfront cost of childcare is another major barrier to parents returning to work and progressing at work. Many parents are also borrowing money to pay upfront fees, as these are usually required to be paid before they have returned to work.

It also says a lack of reliable wrap-around care for children when they go to primary school is  stretching family budgets beyond breaking point.

A childcare guarantee

The charity is now calling for a new childcare guarantee from the government.

This should introduce 15 hours of free childcare for 48 weeks of the year for all pre-school children, not just those aged two or older.

The core 30 free hours for three and four-year olds also need to be extended throughout the year, so it also includes school holidays. At the moment it only covers term-time childcare.

Wraparound care should be offered from 8am to 6pm for school children which could include breakfast clubs and a safe place to study after school.

There should also be significant investment to expand supply and quality of childcare along with providing staff with higher pay and qualifications.

Rachel Statham, IPPR associate director and lead author of the report, said: “Parents and carers are facing a complex, patchy and costly set of childcare offers. As the cost-of-living crisis pushes more families into financial stress, rising childcare costs are increasingly unaffordable – and risk pushing parents of young children out of the workforce altogether.

“We urgently need reform to simplify and expand childcare provision. It’s time for a childcare guarantee to lower barriers for parents getting back into or getting on in work, to reduce costs for families with children, and to ensure every child has access to high quality early years education.”