Select Committee on Social Security Ninth Report


The Social Security Committee has agreed to the following Report:—



  1. The Government will be implementing the EU Parental Leave Directive on 15 December 1999. The Directive allows both men and women up to three months parental leave when they have a baby or adopt a child, and protection from dismissal for exercising this right. In addition, it gives an employee the right to time off for urgent family reasons. Member States have considerable flexibility about how to implement the Directive. The Department of Trade and Industry (DTI) have the lead responsibility for implementation. In the Fairness at Work White Paper, published in May 1998, the DTI consulted about the best way to introduce the Directive in the UK. A further consultation paper on parental and maternity leave was published by the DTI in August 1999.[1]

2. The indications are that the Government intends parental leave to be unpaid. In his Foreword to the White Paper, the Prime Minister wrote that "it cannot be just to deny British citizens basic canons of fairness—rights to claim unfair dismissal, rights against discrimination for making a free choice of being a union member, rights to unpaid parental leave—that are a matter of choice elsewhere."[2] The Regulatory Impact Assessment, published by the DTI in February 1999, costed parental leave on the basis that it will be unpaid. Income Support rules would enable a person on parental leave to claim Income Support—primarily people who are lone parents, or who are sick or disabled parents. On 27 September the Secretary of State for Social Security said that the Government will "help low income parents take up these rights."[3] The Government intends to ensure that employees in two parent families who are on a low income should also have access to Income Support if they exercise their right to statutory unpaid parental leave to care for a child who is living with them.[4]

3. The aim of our inquiry was two-fold: to examine whether the introduction of unpaid leave had implications in terms of the individual's entitlement to social security benefits; and to examine whether there was a case for the introduction of a paid element to leave through a new social security benefit or tax credit. Since we took the evidence the Government has clarified the social security entitlements of those taking leave. Much of the evidence which we received focussed on the arguments for and against the introduction of a method of payment beyond existing benefits. A number of proposals for how a system of payment would work were put forward. Some of these are considered later in this Report. We are grateful to all those who gave evidence to us in the course of this inquiry. Particular thanks go to Ms Donna Lenhoff from the General Counsel of the National Partnership for Women and Families in Washington DC whose written and oral evidence was invaluable in giving us an understanding of family and medical leave in the United States.

4. The new entitlement to parental leave should be seen in the context of the Government's "family friendly" agenda.[5] At the Second Reading of the Employment Relations Bill on 9 February 1999, the Secretary of State for Trade and Industry described the Bill's provisions as "a major part of the Government's agenda for supporting families."[6] Joanna Wade of Maternity Alliance told us that "parental leave is there to help parents reconcile work and family life."[7] Harriet Harman welcomed the introduction of unpaid leave as "a giant step forward."[8] We welcome the introduction of parental leave. This Report does not seek to discuss the merits and demerits of parental leave. That debate has already taken place. Rather, this Report looks at whether the Government needs to go further. Unpaid parental leave will be introduced by the end of the year. But is there a case for the introduction of paid leave?

Leave in other countries

  5. The position in the rest of the European Union is relevant to the debate about the payment of parental leave. Professor Peter Moss has provided us with some very useful information about parental leave across the EU.[9] Only six EU member states make (or propose to make) no form of payment to parents taking their parental leave entitlement: Greece, Ireland, the Netherlands, Portugal, Spain and the UK. There are great variations in the payments made by the remaining member states. They can, however, be divided into two groups: three have an earnings-related element in their payment, the rest have various forms of flat-rate payment. In Germany, for example, each family is entitled to full-time leave until a child reaches 36 months (including 36 months after the adoption of a child, if the child is under 8 years when adopted). Parents taking leave receive a flat-rate payment of DM 600 per month, although the payment is income related (i.e. it is not paid if household income is over a certain level).

6. The situation in the United States has some important lessons for the UK. The US Family and Medical Leave Act (FMLA) took effect on 5 August 1993. FMLA guarantees that men and women who work for companies with more than 50 employees can take up to 12 weeks of unpaid leave a year to care for a newborn or newly-adopted child or for a seriously ill child, parent or spouse, or to recover from their own serious health conditions. Prior to the enactment of FMLA, a number of States had maternity and family policies, but no national policy recognised the need to accommodate the competing demands of work and family.[10] There are some significant differences between the leave provisions in the two countries. These differences must be borne in mind when conclusions are drawn. In the United States leave has to be taken for a specific reason—such as to care for a sick child—whereas in the UK parents will be able to take parental leave at any time and for any reason up to the child's fifth birthday. Another important difference is that in the United States individuals can take up to twelve weeks leave per year whereas in the UK the parent can take thirteen weeks per child. Moreover, in the UK the Government is considering limiting the amount of leave taken in one year to four weeks.[11] Despite these differences, developments in the United States can usefully inform the debate in the UK. A bipartisan Family Leave Commission was established to monitor the impact of the Family and Medical Leave Act. In 1996 the Commission published its report to Congress, entitled A Workable Balance.[12]

Social security implications of unpaid leave

  7. The entitlement to parental leave will soon become a reality. Even if there is no separate social security benefit for those taking leave, there will be implications for the social security system.[13] In the United States, for example, 9 per cent of leave-takers relied on public assistance to cover their lost wages.[14] The Department of Social Security submitted a memorandum which set out the implications for social security benefits of a period of unpaid leave. It explained that:

    "The current benefit rules will allow lone parents and sick and disabled people taking parental leave to be eligible for Income Support; members of couples on parental leave who sign up to Jobseeker agreements may be eligible for Jobseekers' Allowance; and people taking parental leave may also be entitled to Housing Benefit / Council Tax Benefit and Working Families Tax Credit."[15]

8. Ms Harriet Harman MP argued that, in order to ensure employees on parental leave were able to claim Income Support, the Government would need to change the rules to establish that for both lone parents and two-parent couples, Income Support was available to cover periods of leave.[16] According to Ms Harman, the current entitlements are unclear and confusing in respect of parental leave. Ms Harman suggested that this could be achieved through the tax credit system:

    "[U]nder the current system, as it is at the moment, you have got people in three places—in the Working Families Tax Credit system, potentially in the JSA system, and potentially in the Income Support system—if the rules are not changed and if it is not sorted out. Therefore, the Government has got to do something to sort this out from 1 January; and if they are going to sort it out I do not think it makes sense to sort out some people in the JSA system, some people in Income Support, and some people in Working Families Tax Credit. They might as well say, 'Let's go with our assertion that we want to support low income families with children through the tax system. Let's do a parental tax credit'."[17]

9. There may also be implications for the pension rights of individuals taking parental leave. Professor Hilary Land from Bristol University raised a number of important questions: "If the new parental leave remains unpaid in the UK, will pension rights be protected? Just as important, who will be responsible for maintaining pension contributions? It is clear that the basic state pension will be protected but what about stakeholders, occupational and personal pensions?"[18]

10. The Government has clarified the benefits entitlement of individuals taking parental leave. It intends to amend existing legislation to enable all low-income parents to claim Income Support.[19] We welcome the Government's decision to allow low-income parents to claim benefits during periods of leave. Despite this decision, the arguments for and against the introduction of a system of payment remain relevant. The Government estimates that about 1,000 people a year will take advantage of this new provision at an estimated cost of £1.5 million a year. Arguments about the payment or non-payment of leave, however, focus not on amending existing legislation but on whether a new parental leave benefit or tax credit should be introduced. The Government has decided to amend the entitlement to existing benefits. But does it need to go further by establishing a method of payment that goes beyond existing benefits?

The case for payment

  11. Arguments in favour of some form of payment of parental leave centre on the question of take-up. There is universal agreement among both advocates and opponents of payment that the payment of leave in some form would increase the take-up of the new entitlement. The Institute of Directors told us that "Paid parental leave is likely to entail employees taking leave for longer periods than if it were unpaid."[20] Professor Peter Moss told us that "the experience of other countries—and the conclusions of successive reviews of the subject—suggest that there is a strong case for parental leave being paid, if it is to be widely used and provide parents with a genuine choice."[21] Ruth Kelly MP argued that, if unpaid, leave is unlikely to be taken up in sufficient quantities to make a real difference to people's lives and is highly unlikely to be taken up by single parents, the low-paid or fathers.[22]

12. Take-up among low-paid employees is a particular concern of many of those who gave evidence to our inquiry. The Low Pay Unit told us that they are "very, very keen that the low-paid should benefit from this, and we believe that the only way in which they can benefit is to have that parental leave paid."[23] The NSPCC told us that:

    "The major flaw in the government's very welcome plans to implement the parental leave directive is their failure to provide paid parental leave. Rights for parents are worthless if you can't afford to claim them. The government's current plans will discriminate against the poor. They will only allow the well-off to take advantage of unpaid parental leave."[24]

13. Evidence from the United States confirms that low-paid workers are often unable to take unpaid leave. Donna Lenhoff told us that in the US there had been a major differential impact in the take-up rate for low-income families because parental leave was unpaid. Sixty-four per cent of leave needers, defined as people who needed it but did not take it, cited the loss of pay as the reason that they did not. Moreover, lower income people were the least likely to have any paid leave at all provided through other means.[25] The US Family Leave Commission found that 49 per cent of those with annual incomes of under $20,000 who took leave did not receive payment for it compared with only 21 per cent of those with annual incomes of over $75,000. The Government's decision to allow low-paid parents to claim Income Support may result in a higher level of take-up among low-paid parents. But we remain concerned that large numbers of low-paid workers will be unable to claim their entitlement to parental leave because they will lose out financially if they do so.

14. Take-up among fathers is another area of importance. The experience of other EU countries shows that take-up by fathers is generally marginal, with the exception of Sweden, where about half of fathers take leave.[26] New Ways to Work pointed out that men's incomes still remain more important than women's in the average British household and therefore if leave is unpaid it is less likely to be taken by fathers than mothers.[27] Maternity Alliance argued that most fathers will continue to play a peripheral role in their children's early lives unless parental leave is paid.[28] The Parental Leave Campaign argued that encouraging fathers to take parental leave would put the importance of fathering firmly on the government agenda.[29] It is clear to us that if parental leave is unpaid take-up among fathers will be particularly low.

15. Arguments in favour of payment are based on the belief that a high level of take-up is desirable. The TUC told us:

    "The benefits to the economy and society as a whole of high take-up of parental leave are difficult to quantify and in some cases intangible. Higher labour market participation and retention rates would be encouraged by parental leave, which should improve the skills and experience of the labour force as a whole. A parental leave scheme with high take-up rates could also be more effectively linked in with job creation methods and the Government's welfare to work strategy generally. There should also be savings on benefits/increased tax receipts if the availability of parental leave, as part of the strategy for family-friendly employment, encourages workers, especially lone parents back into work."[30]

The case against payment

  16. The CBI and the Institute of Directors both expressed concerns abut the payment of leave, whilst acknowledging the importance of family friendly policies. The CBI told us that it welcomed the intention behind the introduction of parental leave "which is to ensure that there is a better balance created between the legitimate needs of employees to spend time with their young children and the needs of businesses to be able to run themselves in an efficient way." But the CBI is against the payment of leave, arguing that the introduction of unpaid leave "represents a seismic shift towards a family friendly culture in the United Kingdom."[31] The Institute of Directors had opposed the introduction of the right to parental leave in the first place. Ruth Lea, Head of the Policy Unit told us: "I am very comfortable with the idea of having family-friendly policies in the workplace. We have got them in the IoD and many of our members have got them. What I have already said is that these should be voluntary. We do not want the dead hand of regulation."[32] We are concerned that employment practices vary significantly between and within companies and that higher-paid workers are more likely to benefit from family-friendly employment practices. The IoD's belief that family-friendly policies should be voluntary fails to address this problem.

17. The business community is particularly concerned at the administrative impact that the payment of leave would have. Payment of leave would increase take-up thereby increasing the impact on business. The CBI argued that the implementation of the Directive should be seen within "the wider context of the overall burden of new employment legislation which has come through since 1997...Our understanding is that any social security entitlement would place a significant and unacceptable burden on employers in administrative terms and would also lead to pressure on employers to top up the level of that social security requirement to full pay."[33] The IoD also argued that parental leave should be seen in the context of a "rising tide of regulation of small businesses and the business community as a whole."[34]

18. The Federation of Small Businesses (FSB) has particular concerns about the likely impact of the payment of parental leave. Micro businesses, employing fewer than 10 employees, account for 94.7 per cent of UK businesses. Therefore, the absence of one person on parental leave would reduce by at least 10 per cent the firm's available workforce. The FSB pointed out that just as a large company cannot operate competitively without 10 per cent of its workforce, neither can a small business.[35] Employers will be able to postpone leave when it would harm the employers' business or organisation. The DTI has acknowledged that it is more likely that small businesses will need to postpone leave.[36]

19. There are some concerns that parental leave will have a disproportionate impact on certain industries. The British Hospitality Association represents the hotel, restaurant and catering industry, which nationally has nearly 2 million employees. Fifty per cent of these are under age 30, compared to only 26 per cent of the national workforce, and the industry therefore expects to be affected disproportionately by parental leave.[37] We did not, however, receive any statistical evidence to show the proportion of people in the hotel, restaurant and catering industry who have children. Industries employing a high proportion of women are likely to be particularly affected by the introduction of parental leave. On this latter point, the Institute of Directors expressed concern at the possible impact of paid parental leave on recruitment patterns:

    "In the first instance, the introduction of paid parental leave could well harm younger women's employment opportunities. Although the argument for paid parental leave is often predicated upon the notion that it would encourage fathers to take time off work to spend with their children, there is a strong possibility that women will be more likely to take advantage of this right than men...An NOP survey conducted for the IoD last year revealed that 45 per cent of employers considered that the existing maternity laws already made women of childbearing age less attractive for employers to hire. The introduction of a right to paid parental leave could well accentuate this perception."[38]

20. In the same survey of IoD members, carried out in July 1998, 76 per cent of respondents expressed their opposition to the Parental Leave Directive.[39] It should be noted, however, that only 2,500 of the Institute's 50,000 members responded to the questionnaire.[40] This means that only 1,900 (3.8 per cent) of the IoD's 50,000 members expressed their opposition to parental leave. Furthermore, Ms Harman pointed out that neither the IoD nor the CBI have asked their members whether parental leave should be paid and if so how. Ms Harman presented the results of a survey of Southwark Chamber of Commerce on the question of whether leave should be paid and if so by whom. This survey was limited in size and so its results should be treated with a degree of caution. Nevertheless, only 34 per cent of employers who responded believed that parental leave should be unpaid. Of the remaining responses, 42 per cent believed that the government should pay leave-takers, 12 per cent believed that employers should pay, and 12 per cent gave no answer.[41]

21. A number of those in favour of payment addressed the issues raised by the business community. New Ways to Work argued that employers would benefit because "ignoring employees' domestic circumstances does not make their homes go away. If employees are granted rights that help them strike the right balance they are more contented, healthy and motivated."[42] The Parental Leave Campaign pointed out that higher take-up of parental leave may reduce unregulated absenteeism.[43] Many employers already find that family friendly employment practices improve retention and reduce absenteeism. Rank Xerox, for example, estimated that they saved £1 million over a five year period by implementing flexible working arrangements. Recruitment and training costs had been dramatically reduced as they retained more experienced staff.[44] The TUC argued that the benefits to employers of high take-up of parental leave would be "considerable." Dominic Johnson, Head of the Employee Relations Group at the CBI, pointed out, however, that large multinational businesses were able to finance the costs of family-friendly policies up front in order to reap the benefits in a way in which small businesses could not.

22. Not all businesses are against the payment of parental leave. Penguin UK, a company with twenty years experience of operating a range of family friendly policies, told us that "to ensure any statutory Parental Leave entitlement is fully utilised and realises the philosophy of aiding the majority of families to balance their work/life responsibilities, taking the leave should not detrimentally affect them financially."[45] Moreover, a distinction needs to be drawn about attitudes to the parental leave directive and the debate about payment. Business organisations, and the Institute of Directors in particular, have expressed concerns about the impact that the parental leave directive will have. The entitlement to parental leave, however, will soon be a reality. The debate must move on from a discussion of the merits of parental leave to a discussion of whether leave should be paid.

23. Time will tell if the concerns of the business community about parental leave are justified. Only if payment is introduced and the impact is monitored will we be able to draw firm conclusions. The Equal Opportunities Commission is confident that employers' apprehensions will reduce over time as they gain experience of managing parental leave in practice.[46] Christine Gowdridge of Maternity Alliance told us:

    "If you read the debates when maternity leave was introduced in 1972 it was verbatim what people are saying now, which was that industry will grind to a halt, women would all get pregnant at the same time and there would be discrimination against women in the workforce. Five years later, the first report on the operation of the maternity leave scheme said 'We were really surprised. Employers were not having a problem, despite the fact that they were really worried about it'."[47]

24. In the United States, the business community strongly opposed many of the essential provisions of the Family and Medical Leave Act. Ms Lenhoff told us that the predictions of businesses—that FMLA would undermine their bottom line or ruin the economy—have been proven false. FMLA has been relatively easy to implement for the great majority of businesses and implementing the act has imposed little or no costs to businesses.[48] It is to be hoped that the dark predictions of the business community are proved false in the UK just as they were in the USA. But we must be cautious about drawing too close a parallel. It may well be the fact that leave is unpaid in the United States that has meant that the impact on businesses has been negligible. There is no evidence from the United States about what the impact of the payment of leave would be.

Methods of payment

  25. There are a number of possible ways in which parental leave could be paid. Employers could be required to reimburse employees taking leave—though this does not have much support. There is a consensus that any payment of parental leave should be by the state. Indeed, the Government's decision to allow leave-takers to claim income support or Jobseekers' Allowance represents an acknowledgement that the state has a role in reimbursing individuals taking leave. A number of witnesses put forward proposals which went beyond amending existing legislation and would mean the establishment of a parental leave tax credit or a parental leave benefit. The Government could decide to use the Working Families Tax Credit as the basis of a system of payment. Alternatively, an earnings-related method of payment could be introduced in which the state would reimburse a percentage of the employees lost earnings. Another option would be to have a flat-rate payment by the state to all those taking leave. Other suggestions include parental leave accounts or the introduction of a voucher scheme. Different methods of payment could be combined. For example, payment for part of the period of leave could be earnings-related, part could be at a flat-rate. The level of payment and the length of time for which payment is provided can both be varied. We have sought to identify the main options and to summarise their respective advantages and disadvantages.

Payment by Employers

  26. There is near universal agreement that employers should not be obliged to reimburse employees during periods of parental leave. The Brewers and Licensed Retailers Association argued that in the event that the Government decided that there should be some form of payment of parental leave, this should be met by the state and not employers, who would clearly have to meet the costs of covering this leave in their organisation during the period of leave: "It would be most unfair, therefore, to place an additional cost burden on employers who will be seeking to comply with a plethora of new employment legislation."[49] The Federation of Small Businesses also argue that if parental leave is to be paid, then the state should provide for payment.[50] Parents at Work strongly supported the payment of parental leave but told us that requiring employers to reimburse leave takers would have a number of disadvantages. These might include the possibility of some employers trying to delay the take-up of leave and the possibility of an increase in discrimination against women of child-bearing age.[51] We recommend that employers should not be obliged to reimburse employees during periods of parental leave. We welcome, however, the IoD's statement that family friendly policies should be encouraged as good practice[52] and we hope that a number of employers will adopt family friendly policies.

27. If there is no method of payment provided by the state, it is probable that many employers will provide some degree of wage replacement. In the United States the Family Leave Commission found that 46.7 per cent of those who took leave were fully paid, 19.6 per cent were partially paid, and 33.7 per cent were unpaid. But, as we commented earlier, low-paid workers were less likely to be paid: 27.8 per cent of those earning less than $20,000 were fully paid compared with 64.1 per cent of those earning more than $75,000.[53] In the UK large employers with family friendly policies are likely to offer wage replacement for at least part of the period of leave. This is to be welcomed. Penguin UK, for example, has an existing package of family friendly policies which includes two weeks paid paternity leave for new fathers and a compassionate leave policy which enables their employees to take paid leave to help with domestic emergencies, childcare, or family illness. The company told us that its family friendly policies were "operating successfully in helping our employees to better achieve the work/life balance".[54] There is a danger that small businesses will lose out if there is no state payment of parental leave because they will not be able to afford to compete with larger businesses in offering paid or partially paid parental leave.

Tax Credit

  28. One proposal, supported by both the Low Pay Unit and by Ms Harriet Harman, is for a system of payment based on the Working Families Tax Credit (WFTC). Under WFTC the employee will receive a tax credit from the Inland Revenue calculated in relation to their earnings and family circumstances, and paid by the employer on top of wages. Since WFTC is paid for a period of six months regardless of a change of circumstances, those who take parental leave within this period will not lose through a reduction of WFTC. However, only those working more than 16 hours a week are currently eligible to claim, which would disqualify anyone currently on parental leave from claiming WFTC. The Low Pay Unit proposes that when parental leave is taken, the individual's earnings for that period, which are already known to the Inland Revenue, would be replaced by an increased credit. Thus the employee would continue to be paid in full by the employer. With respect to the working partner of the Working Families Tax Credit recipient, the Inland Revenue would also fully reimburse their employer for pay over their period of parental leave. The partner's earnings and employment details will have been recorded and taken into account when assessing entitlement to WFTC. This system would be very similar to the current method for reclaiming Statutory Maternity Pay. It would also mean that low paid employees would not break their National Insurance contributions record while taking leave, so that they would not lose the entitlement they have built up to contributory benefits.[55]

29. Estimating costs is difficult because we do not know what proportion of eligible employees will exercise their right to parental leave, and because the WFTC will bring in a new group of claimants whose earnings are unknown. The Low Pay Unit attempted to estimate the cost on the basis on the current number of Family Credit recipients, who will form the bulk of families taking WFTC. The Low Pay Unit's estimate is based on the age limit for parental leave being eight years of age, but the indications are that the age limit will be five years of age[56]:

    "There are only 464,000 families with children under eight years old...currently receiving Family Credit. They have an average net income of £100.67 per week from the main earner. Only 31,000 of them have a partner with any earnings, with an average of £41.07 per week. If the government were to replace the main earner's wages in full for three months per child, spread evenly over eight years, it would cost less than £117 million per year. This represents a little over 0.1 per cent of the annual Social Security budget."[57]

30. The proposal of a parental leave tax credit has a number of advantages: it would target help; it would be relatively inexpensive; and it fits with wider government policy. Payment by means of the Working Families Tax Credit would focus help on those most in need of it—the low-paid. There is strong evidence that it is the low-paid who will lose out most if parental leave is unpaid. Moreover, by focussing financial help on those who need it most, the tax credit proposal would cost significantly less than proposals based on a degree of wage replacement for all. Finally, the tax credit proposal fits well with the government's policy in terms of encouraging people into work, especially lone parents, who fear that they will be unable to reconcile paid employment with providing decent care for their children.

31. There are, however, a number of significant difficulties with the tax credit proposal. The Federation of Small Businesses argued that should the state provide for funding for paid parental leave, the provision should be paid directly to employees, not via the employer which would mean further bureaucracy imposed on small businesses.[58] The Equal Opportunities Commission agreed that the tax credit proposal is likely to be "complex and difficult to administer."[59] The Parental Leave Campaign considered that small firms could find the administration of a parental leave tax credit particularly burdensome.[60]

32. The GMB expressed concern that there may be 'purse to wallet' considerations if the father received the WFTC and the top-up, while the mother took parental leave.[61] This issue was addressed in our First Report of 1998/99, Tax and Benefits: Implementation of Tax Credits. In that Report we highlighted the concern that where the WFTC is paid through the wage packet, a non-working partner may lose access to vital funds to support the children.[62] If a parental leave tax credit is paid through the wage packet of the father when it is the mother who is taking parental leave (or vice versa), there is clearly a danger that the parent taking leave will not have access to these funds. The TUC echoed this concern[63] and pointed out that WFTC was based on family income whereas parental leave was an individual entitlement: "We are not opposed to the principle of tax credits but we do believe right from the outset that any system has got to be based on the individual because this is an individual right to parental leave and we feel that anything else takes away from that basic principle."[64] Finally, though the fact that the tax credit proposal targets help can be seen as an advantage in that it limits costs, there is concern that most parents would not benefit. Ruth Kelly MP told us that:

    "[U]sing the tax credit system has serious drawbacks, when assessed against the full objectives. In particular, by only providing for paid parental leave for families in receipt of WFTC, it ignores most parents...The fact is that a tax credit system based on the WFTC is unlikely to attract many men and would do nothing to encourage lower to middle income families to use the leave."[65]

Earnings-related payment

  33. A number of those who support the payment of parental leave favoured an earnings-related element to payment. Professor Peter Moss argued that "payment should come from public funds, and should be earnings-related, with the possibility (at least initially) of setting an upper limit on the amount paid to any one parent."[66] The GMB took a similar view favouring "payment at a high proportion of average individual earnings, if necessary limited by an upper earnings limit."[67] The Fawcett Society favoured payment of 90 per cent of earnings for the first month of leave, followed by 80 per cent of earnings for the remaining two months.[68] A number of organisations argued that payment could be similar to Statutory Maternity Pay (SMP) which lasts for up to 18 weeks. For the first six weeks it is paid at 90 per cent of average earnings, and for the remaining 12 weeks it is paid at a flat rate of £59.55. This proposal would mean that the parent is paid by the employer, who reclaims most of the amount back by simply holding back tax and National Insurance.

34. The cost of an earnings-related method of payment would depend on the rate of replacement and the length of time for which payment was provided. A parliamentary answer on 17 May 1999 identified the costs of an entitlement of 13 weeks of parental leave for different rates of earnings-replacement, assuming take-up of 90 per cent for women and 50 per cent for men.[69] These figures should be treated with a degree of caution as they do not take into account the fact that take-up rates would vary significantly depending on the level of wage replacement, nor do they take into account the effect of having an upper earnings limit. Nevertheless, these figures do illustrate the scale of the cost to the government of an earnings-related method of payment.

Rate of earnings replacement
Cost (£million)
Cost (£million)
100 per cent
90 per cent
50 per cent
30 per cent

35. A high level of earnings-replacement would produce the highest level of take-up of all the proposed methods of payment. A high rate would encourage take-up among fathers and across all income brackets. This method also has the advantage of being based on the individual's entitlement rather than on family income. The Maternity Alliance told us that purse to wallet issues would be avoided by the linking of paid parental leave to the salary of an individual parent.[70] If the highest possible level of take-up is the aim, it is clear that a method of payment based on a high level of earnings-replacement is the preferred option. Unfortunately, such a scheme would almost certainly be prohibitively expensive. It is likely to cost between £1 billion and £3 billion a year. Moreover, by linking payment to earnings such a method of payment would direct more resources to the higher paid, and least to the lower paid.

Flat-rate payment

  36. The level of any flat-rate payment would determine its impact. Ruth Kelly MP argued that it would have to be set at the level of the minimum wage, if it were not to penalise taking time off work for parental leave: "If it were set at the level of the minimum wage, wealthier families would be encouraged to save for parental leave, and 'good employers' to top up its value."[71] The gross costs to the Exchequer on an annual steady basis of paying parental leave for thirteen weeks to employees who have a child under 5 are set out below:[72]

£ million

Take up
£60 a week
£100 a week

10 per cent
15 per cent
20 per cent
25 per cent
30 per cent

30 per cent
40 per cent
50 per cent
60 per cent
70 per cent

37. A flat rate method of payment has several advantages: it would be relatively inexpensive; it would target the low-paid; it would ensure a high level of take up among women; and it would provide an opportunity for good employers to top up the benefit. As the above tables illustrate such a payment method would be considerably less expensive than an earnings-related system. A flat-rate payment would have relatively more impact on low income families in terms of wage replacement. Take-up rates in European countries with flat rate payments are high among women.[73] Moreover, a flat-rate payment would be relatively easy to administer and would ensure equality between the sexes as payment would be direct to the leave taker. In the TUC's view, a flat-rate payment would be easy for employers to calculate and might encourage unions to negotiate for, or employers to give, top ups to the flat rate.[74]

38. There are some concerns that the rate of any flat-rate payment would be insufficient and that take-up by fathers would remain very low if a flat-rate was introduced. The GMB pointed out that there would be no guarantee that a flat rate payment would be uprated.[75] Indeed, flat rates tend to be very low in the UK. The low level of lower rate Statutory Maternity Pay, paid after the first six weeks of leave, means that many women return to work before the end of their paid maternity leave.[76] Moreover, there would be less incentive for the higher paid to take leave than with an earnings-related scheme. Fathers are likely to require a relatively high level of income replacement before they will take parental leave, and a flat rate is unlikely to be sufficient. Those on higher earnings, however, are more likely to benefit from voluntary arrangements with their employer. Male take up rates in European countries with flat rate payments are low, at around 1-2 per cent.[77]


  39. It is clear that the impact of parental leave, whether paid or unpaid, needs to be monitored carefully. In the United States the report produced by the Family Leave Commission provides a detailed account of the impact of the Family and Medical Leave Act. This report provides the basis for an informed debate about future legislation—including the possible introduction of an element of payment. Ms Lenhoff considered the establishment of an independent Commission in the United States an example of "good government."[78] In the UK it is only by monitoring the impact of the new entitlement to take parental leave that the success or otherwise of the policy can be judged. In particular, careful monitoring will be able to identify the level of take-up in different sections of society. Professor Peter Moss told us that "decisions on payment (as well as other features of leave such as flexibility) should be explicitly related to clear and stated objectives for parental leave and regularly reviewed in the context of monitoring and research into the impact of parental leave."[79]

40. It is essential that the Government should establish an effective monitoring system. The DTI will seek to monitor the take up of leave, but there will be no statutory reporting procedure.[80] We are concerned that this may be insufficient. The Equal Opportunities Commission believes that there is merit in having an independent body to oversee the introduction of statutory parental leave, and provide advice and support for employers and individuals.[81] The National Childbirth Trust argued that the impact of parental leave should be monitored by an independent Commission appointed by the appropriate Secretary of State.[82] We recommend that the Government should establish an independent body to monitor the take-up and impact of parental leave.


  41. We welcome the introduction of parental leave but are concerned that take-up will be very low unless there is an element of payment. We recommend that the Government should introduce a flat-rate method of payment for those taking parental leave. Such a method of payment would be relatively inexpensive and could form the basis for more generous provision in the future. We recommend that a flat-rate payment should be introduced for a specific length of time after which careful monitoring of the take-up and impact of parental leave should form the basis for informed decisions about payment.

1   Paternity and Maternity Leave: Public Consultation, DTI Employment Relations Directorate, August 1999. Back

2   Fairness at Work, Cm 3968, May 1998, p.3. Back

3   Labour Party Conference Speech. Back

4   Appendix 2, para.3. Back

5   See Supporting Families: A Consultation Document, October 1998. Back

6   HC Deb 9 February 1999,vol.325, col.135. Back

7   Q 7. Back

8   Q 159. Back

9   Appendix 4. Back

10   Ev. p.63. Back

11   See Paternity and Maternity Leave: Public Consultation, DTI Employment Relations Directorate, August 1999, para.22. Back

12   A Workable Balance: Report to Congress on Family and Medical Leave Policies, Commission on Leave, 1996. Copies of the report are available from : The Women's Bureau, U.S. Department of Labor, 200 Constitution Avenue, NW, Suite S-3002, Washington DC 20210. Back

13   For detailed consideration of the social security implications for individuals taking parental leave, see the submissions from the DSS (Appendix 1) and from Carolyn George of South Tyneside Metropolitan Borough Council (Appendix 3). Back

14   Q 151. Back

15   Appendix 1, para.1. Back

16   Ev. p.56. Back

17   Q 159. Back

18   Appendix 6, para.3. Back

19   Appendix 2. Back

20   Ev. p.48, para.5. Back

21   Appendix 4. Back

22   Appendix 13. Back

23   Q 4. Back

24   Appendix 20. Back

25   Q 151. Back

26   Appendix 4, para.9. Back

27   Appendix 14, para.13. Back

28   Ev. p.4, para.4. Back

29   Appendix 8, para.21. Back

30   Ev. p.20, para.25. Back

31   Q 68. Back

32   Q 150. Back

33   Q 68 Back

34   Q 96. Back

35   Ev. p.32, para.5. Back

36   Parental and Maternity Leave: Public Consultation, Department of Trade and Industry Employment Relations Directorate, August 1999, pp.6-8. Back

37   Appendix 23, para.1. Back

38   Ev. p.48, para. 7. Back

39   Ev. p.48, para.7. Back

40   Q 111. Back

41   Q 164. Back

42   Appendix 14, para. 7. Back

43   Appendix 8, para. 53. Back

44   See Ev. p.3.. Back

45   Appendix 24. Back

46   Appendix 15, para.22. Back

47   Q 12. Back

48   Ev. p.64, para.5. Back

49   Appendix 21, para.7. Back

50   Ev. p.31. Back

51   Appendix 10, para.1.4. Back

52   Q 132. Back

53   A Workable Balance: Report to Congress on Family and Medical Leave Policies, Commission on Leave, 1996, p.284. Back

54   Appendix 24. Back

55   For a fuller explanation of the tax credit proposal see Ev pp.8-9, 45-46. Back

56   Paternity and Maternity Leave: Public Consultation, DTI Employment Relations Directorate, August 1999.  Back

57   Ev. p.8, para 3.9. Back

58   Ev. p.32, para.9. Back

59   Appendix 15, para.29. Back

60   Appendix 8, para.79. Back

61   Appendix 12, para.26. Back

62   First Report from the Social Security Committee, Session 1998-99, Tax and Benefits: Implementation of Tax Credits, HC 29, para. 57-60. Back

63   Ev. p.47. Back

64   Q 43. Back

65   Appendix 13. Back

66   Appendix 4. Back

67   Appendix 12, para.3. Back

68   Appendix 11, para.4. Back

69   HC Deb 17 May 1999,vol.327, col.252w. Back

70   Ev. p.5. Back

71   Appendix 13. Back

72   See HC Deb 17 May 1999, vol.327, col.252w. Back

73   Appendix 8, para.70. Back

74   Ev. p.22, para.39. Back

75   Appendix 12. Back

76   Appendix 8, para.71. Back

77   ibid. Back

78   Q 162. Back

79   Appendix 4. Back

80   The Employment Relations Bill: Regulatory Impact Assessment, Department of Trade and Industry, February 1999, para.48. Back

81   Appendix 15, para.23. Back

82   Appendix 16. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 2 November 1999