APPENDIX 12
Memorandum submitted by the National Council
for One Parent Families (TAB 81)
SOCIAL SECURITY
COMMITTEETAX
AND BENEFITS:
IMPLEMENTATION ISSUES
A. Making work pay for lone parentsthe
NCOPF view:
1. INTRODUCTION
There are 1.7 million lone parents in the UK
today.1 Between them, they care for nearly three million
children and represent about 21 per cent of all families. Nine
out of ten lone parents are women.
Paid work is one way of achieving financial
independence and many lone parents see it as the route to a better
standard of living for their children. Lone parents' own instincts
are borne out by the evidence that lack of access to paid work
is one of the most important factors in child poverty. For lone
parents the move into employment means trying to earn enough to
compensate for the lack of a potential second wage-earner, to
cover the costs of children, childcare and 740other work-related
expenses from one wage. It means compensating for the associated
reduction or loss of certain benefits (such as housing benefit
(HB) or mortgage interest payments in income support (IS)). It
also means trying to carry the sole responsibility for parenting
along with holding down a paid job.
2. DECIDING TO
TAKE PAID
WORK
It is important to look at the decision-making
process that lone parents go through before deciding to work,
whether full or part-time. Caring for children alone is a demanding
job, the more so if you are also trying to hold down a paid job.
As sole carers and responsible parentslone parents have
to balance the needs of their children with the demands of paid
work. In this respect they are no different from any other mothers
and in putting the welfare of their children first many judge
it necessary to be full-time parents, at least for a while. For
example, many need to spend considerable time with their children
following the trauma of separation and three in 10 non-working
lone parents state that their own ill-health or disability makes
it difficult for them to undertake paid work.2 A quarter
of lone parents say that a child has a long-term illness or disability
of some kind. For these and many other reasons, part-time working
is often the preferred first option when considering joining the
labour market.
3. CHANGING WORK
PATTERNS
In Britain rates of employment for lone parents
are far below most other European countries41 per cent
are in paid work here compared with over 70 per cent or 82 per
cent in Sweden or France respectively.3 The same study
showed that the UK also has one of the lowest rates of full-time
employment for lone mothers at 17 per cent (the same as New Zealand)
with only the Netherlands having a lower rate at 16 per cent.
At the other end of the scale 67 per cent of lone mothers work
full-time in France and 61 per cent in Finland. The reasons for
this lie mainly in the huge barriers to work (and being better-off
in work) discussed below.
According to the Labour Force Survey, in December
1997 women held 11.4 million jobs compared to 11.6 million held
by men.4 However, while only 12 per cent of the male
jobs held were part-time, 47 per cent of the female jobs were.
Women are projected to make up 46.1 per cent of the total workforce
in the year 2011 compared with 44.2 per cent in 1997.5
Like many women in couples lone parents often prefer to work part-time
in order to combine employment with childcare responsibilities.
This preference is clearly linked to constraints due to children's
needs and the availability of suitable childcare. However, there
is evidence that part-time employment is less common amongst ethnic
minority women.6 For example, 62 per cent of black-Caribbean
women were in full-time permanent positions compared to 48 per
cent of white women in 1994.7
The changes in lone parents' working patterns
have not necessarily mirrored the changes for other women. Between
1979 and 1995 the number of married women with children in paid
work increased by over a quarter, whereas there has actually been
a decline by about a tenth in the proportion of lone parents in
paid work over the same period.8 The steepest decline
has been in the number working full-time (which has fallen by
over a quarter) while the number in part-time work has remained
fairly static.
A recent study has shown that in the 1990s the
trend in lone parent employment has been affected by the 1992
reduction in the hours threshold for claiming family credit (the
definition of "full-time" work was changed from 24 to
16 hours).9 Perhaps as a result, there was an overall
rise in labour market participation between 1991 and 1993. Perhaps
not surprisingly, the proportion working between 16-23 hours trebled
while that working "full-time" fell from a quarter to
a fifth. The proportion working less than 16 hours remained static.
When asked what were the most important factors
that would help them to paid work, reliable child care, good wages
and job security were ranked as the top three most important incentives
(only one in twenty saw family credit as the major incentive to
paid work).10 One in ten saw "convenient hours"
and "able to take time off" as the most important. Lone
parents working part-time were the most likely to feel that convenient
hours were very important to fitting work around childcare or
school hours. One of the major problems (along with childcare)
preventing lone parents from moving into employment in the UK
are housing costs.11 Research shows that lone parents
experience a steep increase in housing costs when they enter employment.
For lone parents paying rent, housing benefit tapers-off very
sharply and creates a poverty trap. Lone parents with a mortgage
receive no help at all.
4. PART-TIME
WORK AND
CHILDREN
The table below illustrates how difficult it
is for lone parents to take paid work when they have children
under five. It is significant that almost as many lone parents
with children aged five and over work full-time as do married
women, but due to the constraints described above it is harder
for lone parents to work part-time. The benefit which most often
facilitates the move into part-time employment is family credit
(FC).
It is marked that lone mothers with children
under five are the least likely to be in paid work, with half
as many working either full or part-time. With older children,
the rates of full-time working seem to catch up to a great extent
but compared to women in couples part-time work seems to be a
much more difficult, albeit the preferred, option. Some 6 per
cent of lone mothers and 14 per cent of lone fathers has a child
of at least 16 years but at the other end of the spectrum 36 per
cent of lone parents has a child under the age of five years.12
This figure is higher for lone parents on Income Support (IS)
where just over 50 per cent of lone parents has a child under
five.13
Figure 1: Employment rates of lone mothers
and married/cohabiting mothers 1997:14
|
Ages of youngest child | Lone
mothers
| Married/
cohabiting
mothers |
|
0-4 Employed | 28 | 57
|
full-time | 10 | 20
|
part-time | 18 | 38
|
5-10 Employed | 46 | 72
|
full-time | 18 | 24
|
part-time | 28 | 48
|
| | |
11-15 Employed | 57 | 78
|
full-time | 28 | 35
|
part-time | 29 | 43
|
| | |
All Employed | 41 | 67
|
full-time | 17 | 24
|
part-time | 24 | 42
|
|
Lone parents in the UK have very high childcare costs compared
to other countries because of the low level of public subsidies.
International research into lone parents employment in 20 countries
identified the high costs of childcare as the primary reason for
our low rates of lone parent employment.15 Lack of
access to affordable, quality childcare is therefore the greatest
barrier lone parents face in participating in any activity outside
the home. This applies as much to education and training as to
employment.
5. LONE PARENTS
AND LOW
PAY
A recent study has shown that in 1994 there were 3.2 million
women and 1.2 million men earning below a pay threshold of £3.87
an hour.16 For many working lone parents having a job
is no guarantee of being free of poverty. In fact, the income
of some 29 per cent of lone parents in paid work falls below half
the national average.17 The contribution made by earnings
to lone parent incomes is actually quite small with wages representing
only 37 per cent of gross household income on average, while benefits
make up 50 per cent.18 For the eight out of 10 lone
parents on means-tested benefits, benefit income makes up three-quarters
of their income.19
Over ninety per cent of lone parents are women and as such
suffer the same levels of discrimination both direct and indirect
as other women. Women are over-represented among the low-paid,
making up nearly 40 per cent of the adults earning below the European
Decency Threshold despite the fact that they make up only 23 per
cent of the sample.20 In addition, there is some evidence
that lone parents suffer discrimination in employment because
of their parenting role. Of particular concern is the fact that
on average women still earn less than men in the labour market.
This adds to the problems of in-work poverty faced by many lone
parents. A recent report from the EOC alerted us to the fact that
women working full-time earn only 80 per cent of men's average
wages.21 While men earn on average £9.39 an hour,
women earn only £7.50. Nearly 80 per cent of women who work
part-time have gross earnings below the Council of Europe's Decency
Threshold.22 Women make up 77 per cent of those earning
below the Lower Earnings Limit for National Insurance (nearly
2 million women).23 According to the new Earnings Survey,
three-quarters of the low paid are women and two-thirds of low
paid workers are part-timers.24 Over half of low paid
workers are women part-time workers.
Essentially, a lone parent wanting to take paid work has
to find a stable, secure job that pays enough to cover childcare
and other work expenses, with hours she can fit around her family's
needs. However, the preferred part-time work does not pay enough
to keep a family, hence in-work benefits, primarily FC, are needed
to top up earnings. It is notable that for working lone parents
on FC the average hourly rate of pay is £3.60 with many working
for substantially less.25 The third potential source
of income to add to the income package is child maintenance, but
as yet only some one in three lone parents receives any, despite
the setting up of the CSA.26
Half of lone parents in paid work are claiming FC. Lone parents
make up 48 per cent of all families claiming FC.27
The average number of hours worked per week on FC is 25, compared
to nearly 34 hours a week for claimants in couples. The remuneration
for this work is small with 40 per cent in receipt of the maximum
FC available. This may be partly explained by the fact that lone
parents are concentrated in traditionally low-paying jobs such
as clerical work, selling, catering, cleaning, hairdressing, personal
services and repetitive assembling. Some of these are occupations
formerly covered by the Wages Councils. When last reported, they
made up about 69 per cent of all lone parent occupations on FC28
Perhaps unsurprisingly, these occupations figure prominently in
the list of ten poorest paid jobs in the UK:
Figure 2: The ten lowest paid occupations in the UK:29
Kitchen porters, hands
Hairdressers
Waiters, waitresses
Bar staff
Childcare and related occupations
Catering hands and assistants
Petrol pump attendants
Launderers, dry cleaners, pressers
Retail cash desk and check-out operators
Sewing machinists, menders, darners, embroiderers
Although 92 per cent of lone parents are white, some ethnic
minority lone parents may disproportionately be affected by the
low pay economy.30 For example whilst one in ten Pakistani/Bangladeshi
families is headed by a lone parent, over four in ten Afro-Caribbean
families are.31 The latter group is characterised by
high labour participation rates.
According to recent research FC brings the hourly reward
for work up to £7 an hour (if FC is included to make up the
hourly rate).32 However, in most cases lone parents'
average earnings are close to the threshold at which maximum FC
is awarded. Despite this, many lone parents are unaware of their
entitlement to FC. In a recent study two-thirds of eligible non-claimants
could not spontaneously name "a benefit available to families
who work more than 16 hours a week".33
Recent figures from the Policy Studies Institute (often quoted
by the Government) show that although working lone parents may
be living on up to £50 a week more than lone parents on IS,
this figure by no means indicates the likely improvement in income
when lone parents move into paid work.34 Rather, the
figure shows how much worse-off they would be out of paid work.
Furthermore, these figures are based on the assumption that a
lone parent is receiving maintenance (when only one in three does)
and that s/he has no or very low childcare costs. This figure
does not allow for increased outgoings such as the extra rent
and Council Tax which have to be paid when someone starts paid
work. In other words, for some lone parents the gains from paid
work may be extremely marginal and risky indeed
One study concluded that receipt of FC can have a detrimental
effect on a lone parent's earning ability and prospects of improving
her financial position.35 Although FC brings lone parents
into employment who would otherwise not be, it also increases
their preparedness to take jobs below their earnings capacity.
In these poorer paying jobs the chances of wage improvement or
earnings progression is held back thus raising questions about
lone parents' ability to prosper in these circumstances. In fact,
many lone parents are unable to sustain FC employment and returned
to Income Support within a relatively short period.36
6. THE POVERTY
TRAP
Lone parents, along with other families with children, lost
out disproportionately from changes in personal taxation between
1985 and 1995 with 64 per cent losing and only 13 per cent gaining.37
Added to this, lone parents experience high marginal tax rates
when in receipt of FC. Once lone parents earn enough to pay tax
at 23 per cent they face marginal deduction rates (through the
combination of tax and loss of benefits) of 93 pence in the pound.38
The effect of receiving FC to subsidise low pay means that many
lone parents reach a "poverty plateau" where increases
in earnings do not significantly improve their income position.
In practice, this means that many see no advantage in improving
their level of earnings and stay in low paid jobs for longer periods.
There is also little incentive to increase the hours of paid work.
Add to this the limitation on hours through lone parents' parenting
responsibilities and the lack of a second income and the poverty
trap is set.
A lone parent with one child under 5 in local authority accommodation
and £60 a week childcare costs would need to earn £289.55
a week before she escapes FC.39 With two children one
under five and one aged between five and ten, she would have to
earn £315.89 a week.
This is not to say that many lone parents are not better
off in paid work than on IS, the key point is that it is difficult
for them to improve their position. The National Council for One
Parent Families argues for a combination of policies which both
increase pay levels and reduce the severity of the poverty trap,
thus resulting in lone parents moving off the poverty plateau
sooner.
A second trap inherent in means-tested support for low-paid,
part-time workers has recently been identified by Holly Sutherland
as the "contributions trap".40 In order to
qualify for benefits and pensions in the future, a FC claimant
working 16 hours a week needs to earn at least £3.88 an hour
in order to become contributors to the mainstream benefits system.
She warns that a National Minimum Wage (NMW) set below this level
would create incentives for employers to offer jobs at or slightly
above the NMW in order to avoid payment of contributions. Clearly,
a level set higher than this and regularly up-rated would be referable.
A key issue for lone parents is the fact that many will have reduced
pension entitlements in old age and less social security protection
in general due to low or intermittent payment of National Insurance.
B. Making work pay for lone parentsafter the budget:
1. INTRODUCTION
The working families tax credit (WFTC) is more generous than
family credit (FC) and is therefore to be welcomed. It could lead
to real income improvements for many working lone parents bringing
higher in-work incomes and thus providing work incentives for
those ready to take paid work. There is also some improvement
in marginal tax rates although this applies less to those claiming
other means-tested benefits. Lone parents will benefit most from
the introduction of a child care tax credit (CTC).
The changes to national insurance are also welcome. However,
the impact is likely to be small for most lone parents. A more
important question for them is to ask how contribution conditions
can be changed to "credit-in" more lone parents to the
national insurance scheme. This applies most critically to pension
reform. Many lone parents, whether in or out of paid work, will
be the poor pensioners of tomorrow due to the restrictions placed
on their earning power as the sole or primary carer for their
children. Also, given that three in ten non-working lone parents
state that their own ill-health or disability makes it difficult
for them to get paid work, it is likely that they are missing
out on entitlement to incapacity benefits as well. We hope this
issue will be tackled in the wider social security reviews taking
place.
We examine below the effect of WFTC on the unemployment and
poverty traps for lone parents, the interaction between the budget
proposals and the benefit cuts already implemented this year and
the interaction between the WFTC, housing benefit and council
tax benefit.
2. THE EFFECT
OF THE
WFTC
The WFTC is more generous than FC and ought therefore to
make a positive contribution to the Government's aim to help lone
parents who are ready to do so to enter the labour market. Lone
parents will gain mainly through:
the increased child credit for children under
11;
the increased threshold (or applicable amount)
before the Credit starts to be withdrawnthis rises from
£79 to £90 a week; and
through the reduction in the taper from 70 per
cent to 55 per cent.
According to the Institute for Fiscal Studies there are likely
to be 60,000 new lone parent claimants of WFTC (or 14 per cent
of new recipients).41 The largest groups of new claimants
will be single earner couples (47 per cent) and two-earner couples
(39 per cent). However, there is also some effect on the unemployment
and poverty traps (See below).
Since 1992, the trend has been for lone parents to work part-time,
most frequently below 25 hours a week. This means that many will
benefit only from the £2.50 increase in the child credit
for under 11s. At present, 40 per cent of lone parent claimants
are already getting the maximum FC payments available. For this
group entitlement will not be enhanced by the reduced taper. Indeed
with the increased threshold more are likely to receive the maximum
WFTC available. This means that the WFTC will continue to allow
lone parents to work fewer hours, with (effectively) a standard
top-up income. The main advantage for them will be through the
Childcare Tax Credit which could make a substantial new contribution
to their incomes (see page 9).
The next question is how far will there be any incentive
to improve earnings or increase hours from this position? Arguably,
for some, there will be even further to go to see any real income
improvements or ultimately to break free from higher marginal
tax rates. The extent to which these changes will benefit lone
parents depends crucially on the interaction with other benefits
and in particular, on the decisions made about the future of housing
benefit (see below).
3. THE EFFECT
ON THE
UNEMPLOYMENT AND
POVERTY TRAPS
The WFTC improves the unemployment trap for lone parents.
This is measured by looking at earnings replacement ratios which
describe income out of work as a proportion of in-work income,
shown as a percentage. The Institute for Fiscal Studies estimates
that for 275,000 lone parents these earnings replacement rates
will fall by 4 per cent on average.42 In other words,
the financial returns of working are improved to this extent.
The only group to fare better are men in single and two-earner
couples.
The "poverty trap" describes the extent to which
it is possible to improve income while receiving means-tested
benefits. The withdrawal rate of these, combined with tax and
national insurance payments mean that even as gross income rises,
net income may increase only by small amounts. This is usually
illustrated by looking at marginal tax rates which show the rate
at which income is withdrawn for every extra pound in gross earnings.
For someone paying only national insurance and claiming FC/WFTC
these marginal tax rates fall by 13.5 per cent to a 59.5 per cent
withdrawal rate under WFTC.43 When income tax is included,
the fall is reduced to 10.5 per cent. For people claiming both
housing benefit and council tax benefit, marginal tax rates fall
by only 1.3 per cent to 95.3 per cent. A recent parliamentary
answer showed that a lone parent might face a marginal rate at
this level with earnings of only £125 a week.44
There is clearly a need to address the effect of the combined
benefit tapers which reduce work incentives. In addition, the
substantial losses for working lone parents caused by benefit
cuts in both housing benefit and council tax benefit are likely
to affect any gains in this area.
4. INTERACTION WITH
HOUSING BENEFIT
AND COUNCIL
TAX BENEFIT
As discussed above one of the greatest barriers facing lone
parents on starting paid work are housing costs. There is a real
concern that the income improvement brought about through the
WFTC will be off-set by the existing tapers in housing benefit
and council tax benefit. Also, the greatest losses (up to £9.35
a week) from the abolition of the Lone Parent Rate of Family Premium
lie precisely in this area and this shortfall remains even after
the budget announcements (see page 9 and Appendices). The increase
in housing costs associated with coming off income support is
now even steeper.
Following the benefit cuts, there is a clear need to build
protection for working lone parents into the housing benefit and
council tax benefit schemes to prevent a situation where in appearing
to treat lone parents in the same way as couples they are actually
receiving unequal help with their costs and facing additional
work disincentives. We hope that this situation will be addressed
in the review of housing benefit. It cannot be argued that a one
parent family has any less need for help with housing costs or
council tax liability than a two parent family. Children need
the same amount of space and the same high standard of accommodation
as those in any other family. To achieve the stated objective
of increasing the number of lone parents in touch with the labour
market, the Government must introduce measures to reduce the extent
to which housing costs are a barrier to paid work for lone parents.
This could be done (under the existing scheme) by increasing either
the applicable amount or the earnings disregard.
In addition, unless there are changes to the rate at which
housing benefit and council tax benefit are withdrawn as income
rises, lone parents will lose up to 85 per cent of the extra income
represented by WFTC. One idea is to include a housing costs element
in WFTC to simplify the system and ease the poverty trap. However
if this element was based on a flat rate rather than actual costs,
it could lead to increased hardship for those with higher rents
or in more expensive parts of the country.
Extending help with housing costs to home owners in low paid
work would reduce, what is for them, the major barrier to paid
work and at the same time reduce hardship. Without any targeted
mortgage help for home owners in this situation, many lone parent
home owners will continue to face in-work net incomes below income
support levels.45
Steps need also to be taken to smooth the transition from
Income Support into FC/WFTC by continuing to meet IS/HB/CTB payments
for a period after paid work has started, or by making a lump
sum payment to meet initial work expense such as clothes, equipment,
travel and advance childcare fees. Consideration could also be
given to paying chidcare payments in advance of starting paid
work so children can be settled into care before paid work starts.
Measures like these might also help to prevent lone parents from
leaving paid work after a short period due to the well-known stress
of this transitional period. Fast-tracked benefit and child maintenance
payments are also vital to achieve this.
5. THE ROLE
OF EMPLOYERS
Payment through the wage packet will certainly enhance the
perceived take-home pay for lone parents and may therefore increase
the attractions of paid work. It is hoped that levels of take-up
will be improved as a result. However, at present this is an untested
assumption and other factors may come into play. For example,
some lone parents may worry that their personal finances are becoming
more visible to colleagues and employers causing a disincentive
to take-up benefits. There is also a danger that lone parents
familiar with dealing with the benefits system will find the new
system obscure and fail to access it. Good publicity and advice
will be needed in addition to the New Deal.
Lone parents are most often to be found in part-time, low
paid jobs in the "flexible" economy. Many may be working
short-term contracts, or working for more than one employer. Efficient
methods of assisting smaller employers, deciding which employer
(if more than one) should administer the credit and effecting
rapid changes from one employer to another will be necessary.
For some it may be preferable to receive the credit direct, rather
than through the wage packet to overcome these problems. If not,
guidance may be needed for employers on how to deal with these
matters sensitively. There is also a danger that some employers
may deflate wages in the light of the WFTC payments being received
by employees. There should perhaps be payroll monitoring of employers
through an Inland Revenue Inspectorate to guard against such abuse.
There may be a role for linking this to the enforcement of the
national Minimum Wage.
Concerns about transferring income from "purse to wallet"
are less of a concern for one parent families. However, given
that three-quarters of women who re-partner are likely to find
themselves in couples where they are not the main earner there
may be a case for arguing that payment through a new partner's
wage packet could produce a disincentive to re-partner or even
provide an incentive to separate.
6. IMPLICATIONS OF
THE CHILDCARE
TAX CREDIT
The Childcare Tax Credit (CTC) will bring about a substantial
improvement for many lone parents. In particular, the lowest paid
lone parents in work will be helped for the first time by receiving
a direct contribution towards childcare costs. Ironically, in
the past their earnings were often too low to qualify for help,
particularly those getting the maximum FC. Unfortunately, the
CTC will not apply to children of twelve and over; this is too
low and should be raised to at least fourteen.
According to figures provided by the Daycare Trust on current
childcare costs, a childminder for a child under 5 costs £50-120
a week full-time and £70-180 at a private day nursery (representing
a third of average income for a family with two children).46
The CTC may not be enough to cover all childminder costs, particularly
where lone parents have larger families. This may also raise the
issue of the sustainability of childcare services in low-income
areas where services are reliant on the CTC to fund them.
As currently outlined, the credit does not cover childcare
costs for lone parents undertaking training or education. We would
like to see help extended to this group as this could provide
a useful route into better paid work for many. Along with tackling
the interaction of WFTC with HB and CTB, this could create significant
incentives not just to enter paid work, but to improve earnings
and to move up the income scale.
Lone parents caring for children with disabilities and those
working shifts, evenings or weekends may have access to informal
or very expensive care. It is not yet clear how these needs can
be met or funded. This is despite the fact that these are highlighted
as important areas of need in the Childcare Green Paper. Will
these types of care be covered by the childcare tax credit? In
the past we have recommended that special allowance be made for
unregistered care for those working unsocial hours. Recent research
has again confirmed that such informal care usually has to be
paid for.47 Serious consideration could be given to
piloting such a scheme. Consideration could also be given to meeting
initial childcare payments in advance of starting paid work so
children can be settled into care before paid work starts. Measures
like these might also help to prevent lone parents from leaving
paid work after a short period due to the well-known stress of
this transitional period.
7. BENEFIT CUTS
AND THE
BUDGET
The Budget proposals affected neither the cuts already made
on 6 April 1998 to the Lone Parent Rate of Family Premium (paid
in income support (IS), housing benefit (HB) and council tax benefit
(CTB) nor the cuts to the Lone Parent Rate of Child Benefit implemented
on 6 July 1998. Both the Premium and Child Benefit for lone parents
have been frozen for the third year running so real income losses
are being faced by all working lone parents for a period of eighteen
months before WFTC is introduced in October 1999. The effect of
both cuts are shown in Annex 1.
Of particular concern is the removal of the Lone Parent Rate
of Family Premium in April which has reduced housing benefit and
council tax benefit for lone parents in paid work and for lone
parents moving from Income Support into paid work. Government
estimates for 1998-99 show that working lone parents are facing
maximum average national losses of £10.20 per week as result
of these changes. The bulk of these losses are due to cuts in
housing benefit and council tax benefit which have already been
identified as one of the two greatest barriers to paid work (see
page 7 above).These losses may amount to as much as £9.35
a week.
The budget announcements introduced a number of welcome measures
to help families with children which went some way to restoring
the losses faced by one parent families. These changes will be
introduced in November 1998 (a £2.50 increase in child personal
allowances) April 1999 (£2.50 increases in Family Premium
and Child Benefit) and October 1999 (WFTC and CTC). However, not
all will gain (see below).
Figure 3: Gainers and losers
A recent Parliamentary Question shows the Government estimates
of the average gains and losses for lone parents following the
budget announcements. These are shown in the following table:
|
| Better-off | No change
| Worse-off |
|
Number | 1,470,000 | 255,000
| 60,000 |
Average gain/loss £ | 6.30
| 0 | -2 |
|
(HC Deb, 31 March 1998, col. 486w)
|
| | |
These figures show that over three-quarters of lone parents
will gain rather than lose from the budget in the long-term. Those
worse-off include lone parents who are no longer entitled to the
Lone Parent Rate of Child Benefit, who are making new claims for
Income Support, housing benefit or council tax benefit and who
don't have a child under 11. However, this holding answer shows
the cumulative effect of the changes and our concern is that many
will not reach this point until October 1999.
Furthermore, those lone parents who have no children under
11 do not stand to gain to the same extent as those who do. It
is worth pointing out that there are 102,000 lone parents on FC
in this situation and 213,000 on Income Support. A further 20,000
are in receipt of housing benefit.48
Working lone parents
The effects of the budget are illustrated in Annex 2. This
shows that there are substantial gains from the Childcare Tax
Credit at the lower level of earnings. This is because the childcare
disregard was not available under FC for lone parents receiving
the maximum benefit. This is an extremely welcome development.
However, our calculations show the effects of the budget changes
on a working lone parent with two children, living in local authority
housing:
despite cash gains in November 1998 and April
1999, the income gap is not closed until October 1999;
by October 1999, a lone parent earning £85
net a week is still £7.71 worse-off than a protected lone
parent. If she earns £150 net a week, she is still £3.15
worse-off than a protected claimant;
this shortfall is due to the interaction between
the new benefits and housing benefit and council tax benefit.
At higher levels of FC/WFTC these benefits are withdrawn completely.
The loss of the Lone Parent Rate of Family Premium in calculating
housing benefit and council tax benefit is still felt sharply
at all income levels;
the other main reason for the shortfall in comparison
with existing claimants is of course the loss of the Lone Parent
Rate of Child Benefit.
8. HOW TO
MAKE WORK
PAY FOR
LONE PARENTSA
SUMMARY
For many lone parents the critical balance between earnings,
benefits and costs of childcare will be the deciding factor in
whether they are better off in paid work than on IS. Otherwise,
lone parents taking low paid work may risk joining the working
poor rather than escaping poverty. The National Council for One
Parent Families recommends a number of policy initiatives to achieve
this:
The National Minimum Wage
A national minimum wage (NMW) set at the right level will
increase the contribution that part-time work can make to total
income. We hope this will make it profitable for lone parents
eventually to increase hours of work or their level of earnings
and lift themselves out of the low-paid poverty trap.
However, as a result of the NMW, childcare costs will rise
as workers in this industry are poorly paid. This means that the
NMW policy cannot be seen in isolation from other policies concerning
childcare, education and training, raising Child Benefit and improving
other benefits.
In view of the relatively large contribution made by means-tested
benefits to the in-work incomes of lone parents, there is a danger
that a NMW will simply replace the payment of in-work benefits
for lone parents and not lead to a significant improvement in
income. Again, the level needs to be set high enough to counteract
this effect. In our submission to the Low Pay Commission we recommended
a level of over £4.
Reform of contribution conditions
The changes to national insurance are also welcome. However,
the impact is likely to be small for most lone parents. A more
important question for them is to ask how contribution conditions
can be changed to "credit-in" more lone parents to the
national insurance scheme. This applies most critically to pension
reform. Many lone parents, whether in or out of paid work, will
be the poor pensioners of tomorrow due to the restrictions placed
on their earning power as the sole or primary carer for their
children. We hope this issue will be tackled in the wider social
security reviews taking place.
Weakening the low-pay poverty trap
The harshest effects of the means-tested poverty trap needs
to be addressed. It is particularly regrettable that the lone
parent increase to Child Benefit is due to be abolished as this
could have played a key role in lessening its effects. The Government
has reduced benefit tapers higher up the scale in the working
families tax credit, but for working lone parents the interaction
of this with housing benefit and council tax benefit will be crucial
(see below). Some progress has been made in this direction in
the budget but not enough to counteract the effect of benefit
cuts.
Transitions
DSS research shows that the greatest deterrent to claimants
taking up paid work is the fear of financial insecurity and the
problems of surviving with no income until the first payment of
wages.49 Steps should be taken to smooth the transition
from income support into FC/WFTC by continuing to meet IS payments
(as for HB/CTB) for a period after paid work has started; or making
emergency payments if WFTC is taking time to come through; by
making a lump sum payment to meet initial work expense such as
clothes, equipment and travel or by paying childcare payments
in advance of starting paid work so children can be settled into
care before paid work starts. Measures like these might also help
to prevent lone parents from leaving paid work after a short period
due to the well-known stress of this transitional period. Fast-tracked
benefit and child maintenance payments are also vital to achieve
this.
PASSPORTED BENEFITS
WFTC claimants should continue to be "passported"
to health benefits (such as free prescriptions) as is the case
with current FC claimants. Free school meals for working families
should also be considered. The details of implementation are also
important. We would like to see WFTC retain the best features
of FC. For example, the retention of six monthly awards to provide
security of income.
Help with housing costs
One of the major problems preventing lone parents from moving
into employment in the UK are housing costs.50 Research
shows that lone parents experience a steep increase in housing
costs when they enter employment. For lone parents paying rent,
HB tapers-off very sharply and exacerbates the poverty trap. Help
in housing benefit and council tax benefit has recently been cut
by up to £9.35 a week due to the abolition of the Lone Parent
Rate of Family Premium. Lone parents with a mortgage receive no
help at all. The system of housing support is in urgent need of
review. Housing benefit could be reinstated for lone parents by
using the couples personal allowance to calculate it, or by increasing
the earnings disregard for lone parents.
IMPROVEMENTS TO
THE CHILD
MAINTENANCE SYSTEM
The majority of lone parents receive no child maintenance
and therefore do not benefit from the maintenance disregard on
FC. Currently, only 30 per cent of lone parents get any child
maintenance at all. The recent Green Paper, Children First,
is in part an acknowledgement that the scheme is in need of review.
NCOPF believes that it needs to be made much more effective and
a system of guaranteed child maintenance payments is essential
to provide reliable and regular payments. Failing this, WFTC should
be paid gross to protect parents who receive fluctuating child
support payments. This could be done by paying the WFTC as if
no child maintenance was in payment. Any disregarded maintenance
could be passed on to the parent with care and any further maintenance
collected by the CSA apportioned between the parent with care
and the benefits agency in line with the tapers (45 per cent to
the PWC and 55 per cent retained by the Inland Revenue).
We warmly welcome the introduction of a child maintenance
disregard for income support claimants, something we have advocated
for many years. This is essential to ensure that children benefit
from the scheme. The disregard could also be substantially improved
for working lone parents on FC/WFTC, or all child maintenance
payments disregarded. This might to some extent compensate lone
parents if they are to face falls in child maintenance levels
as well as improving work incentives. For more detail of our recommendation
to the Comprehensive Spending Review on child supportsee
our separate paper: Securing a Fair and Effective Child Maintenance
System.
Family friendly employment policies
These are still not widely available. Few employers allow
time off to care for a sick child, or for essential medical or
educational appointments connected with their children's needs.
With no other adult to assist, these are major concerns for lone
parents. More flexi-hours, term-time working, carers leave and
job-sharing could all help lone parents to combine paid work and
parenting. Implementation of the European Directive on Part-Time
Workers Rights, the Working Time Directive and Parental Leave
Directive will all be of assistance here.
Education and training
Some lone parents are not immediately work ready, but the
majority want to take paid work at some point. Many have been
out of the labour market for some time and they lack confidence
and self esteem, as well as marketable employment skills and recent
paid work experience. Nationally some 40 per cent of lone parents
have no educational qualifications at all.51 However,
there is evidence that lone parents in part-time work with young
children are on average better educated than those with older
children.52 They have perhaps taken this step because
they have better prospects and many feel able to move on to full-time
paid work in due course.
Recent Rowntree research on lone parents and paid work confirms
that lone mothers with higher educational qualifications not only
find it easier to get and keep a job, but are also more able to
move on from part-time to full-time work.53 The study
found that those lone parents with post-school and university
qualifications earned between 30 and 50 per cent more a week than
those who were unqualified. Lone mothers with academic qualifications
saw their earnings once in paid work rise more quickly than others.
Of course, not all lone parents would seek to go into higher
academic education. For many, basic skills and training for work
is a better option. Lone parents need opportunities for work experience,
combined with skills for work. The other potential training provider
is the employer. Job-related training has a significant impact
on earnings for lone parents.54 Those who receive it
are estimated to be earning a third more than lone parents who
do not. The promotion of staff development and training on the
part of employers is vital, and should be an essential component
in strategies to promote lifelong learning. For lone parents who
will very often enter employment at the bottom end of the labour
market it is important that there are prospects for progression
and development.
The National Council for One Parent Families has recommended
to the Select Committee on Education and Employment that steps
should be taken to introduce a range of measures to improve access
to and to provide improved finances to enable return to education
and training for lone parents. In addition, we recommended that
the New Deal for Lone Parents could be expanded to include more
education and employment options and provide greater direct assistance
with the associated expenses. Moves have since been made in this
direction. But also, the Childcare Tax Credit needs to be expanded
to cover expenses while in education and training.
Childcare
Lack of access to affordable, high quality childcare is the
greatest barrier lone parents face in participating in any activity
outside the home (including education and trainingsee above).
According to the Daycare Trust, only one child in nine under the
age of eight has a place in a nursery, with a registered childminder
or in an out-of-school scheme.
Seventy-seven per cent of lone parents say that lack of childcare
prevents them from leaving income support and almost two-thirds
say that paying for childcare is a problem.55
The Government has committed itself to developing a "National
Childcare Strategy", and there is an initial new investment
in out-of-school provision of some £300 million. This is
something of a breakthrough in this field. However, only the new
money for out of school care through TECs is available from April
1998 increasing funding from £4 to £10 million. Bids
for the largest slice of money (£200 million) through the
New Opportunities Fund will not be possible until April 1999.
Lone parents included in the early stages of the New Deal are
unlikely to be able to take advantage of increased availability
of childcare.
The Paper gives important signals about the importance of
quality, inspection, training and qualifications. This is critically
important to improve the confidence of lone parents in childcare
services. Also, the emphasis on the need to increase the status
of childcare work as discussed in the rest of the paper is very
welcome.
The Childcare Tax Credit will bring about a substantial improvement
for lone parents. In particular, the lowest paid lone parents
in work will be helped for the first time by receiving a direct
contribution towards childcare costs. However, the extra help
is not available until October 1999 which leaves quite a long
delay before childcare can be extended to more lone parents. Also,
judging by the figures on current childcare costs provided by
the Daycare Trust, the Credit may not be enough to cover all childminder
costs, particularly where lone parents have larger families.
To make the CTC work better for more lone parents, we advocate:
raising the age limit to at least 14;
using the CTC to cover childcare costs for lone
parents undertaking training or education;
making special allowance for unregistered care
for those working unsocial hours; and
to meeting initial childcare payments in advance
of starting paid work so children can be settled into care before
paid work starts.
Reversing benefit cuts
The Lone Parent Rate of Child Benefit was the only non-means-tested
benefit specifically tailored to meet the needs of lone parents
families. As it was deducted pound for pound from IS it was therefore
mainly of benefit to lone parents in employment. It provided one
fifth of the increase in income available to lone parents who
start paid work and as such was essential to help them overcome
the work disincentives which they face.56 Removing
this benefit at the same time as encouraging more lone parents
into paid work was completely inconsistent and has acted as a
disincentive and not an incentive to work.
Evidence from a recent study about lone mothers, employment
and well-being is also extremely relevant here. It found that
exposure to severe hardship had an adverse effect on employment
and that those in hardship in 1991 were less likely to have jobs
even four years later in 1995.57 This would suggest
that the reduction in lone parent benefits is likely to hinder
return to work strategies.
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