Select Committee on Social Security First Report


APPENDIX 12

Memorandum submitted by the National Council for One Parent Families (TAB 81)

SOCIAL SECURITY COMMITTEE—TAX AND BENEFITS: IMPLEMENTATION ISSUES

A. Making work pay for lone parents—the 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 parents—lone 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 countries—41 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 childLone
mothers
Married/
cohabiting
mothers

0-4 Employed2857
full-time1020
part-time1838
5-10 Employed4672
full-time1824
part-time2848
11-15 Employed5778
full-time2835
part-time2943
All Employed4167
full-time1724
part-time2442


  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 parents—after 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 withdrawn—this 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-offNo change Worse-off

Number1,470,000255,000 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 support—see 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 training—see 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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Prepared 2 December 1998