Childcare Payments Bill

Written evidence submitted by the Child Poverty Action Group (CP 03)

1. Child Poverty Action Group (CPAG) has worked for almost 50 years to prevent and relieve poverty among children and families in the UK. We have particular expertise in the functioning of the social security system through our welfare rights advice, training and research work and we welcome this opportunity to provide evidence to the Public Bill Committee as it scrutinises the Childcare Payments Bill.

2. We welcome the significant funding commitment represented by this Bill with nearly £1 billion to be invested in childcare. And we acknowledge that the Tax-Free Childcare (TFC) scheme is an improvement on the existing employer-supported childcare schemes - mainly because the new TFC scheme will apply to everyone regardless of whether their employer has signed-up to it .

3. However, the rationale for a demand-led subsidy to families with a joint-income of nearly £300,000 is unclear. If the purpose of TFC is to help parents to get and stay in paid work, then there is little evidence that higher income families would work less or would be prevented from working if they did not have this subsidy . However, the reverse is true for low-income families – for them, childcare costs pose a significant barrier to participating in paid work, to job retention and to progressing in paid work.

4. Parental employment is a key route out of poverty. The most recent child poverty data shows that 29 per cent of couple families with one full time earner live in poverty, compared to 8 per cent of couple families with two earners. [1] Likewise, a single parent working part-time has a 30 per cent risk of poverty compared to 22 per cent of single parents working full-time. [2] While there is plainly a balance to be struck between the hours parents should work and their family responsibilities, increasing employment for low-income parents has a clear poverty pay-out.

5. However, low-income families’ working lives often look quite different from those on higher-incomes: they are characterised by more sporadic patterns of work, by unpredictable and often-anti-social hours, and by a much lower degree of control over when and where work happens than those further up the income scale. These realities mean that organising childcare is already far from simple for low-income parents.

6. While the (in some cases, two-), three- and four-year old free entitlement provides parents with some free hours of childcare, in practice this rarely fits around the shifts available to those in low-paid jobs. Families, then, have to find additional childcare to support their working patterns, as well as to make complex calculations as to whether the gains from extra work are enough to cover any additional childcare costs.

7. In CPAG’s view, supporting low income parents to work by providing effective childcare support is a critical policy priority and given this, we question whether the proposed TFC scheme is a well-targeted use of funds. Instead, we make two suggestions with respect to the government’s proposed Childcare Payments Bill.

Create parity between tax-free childcare and childcare support under universal credit

8. The two systems of childcare support that we have developed in the UK are far from optimum: they require separate administration, cause confusion for users, and are particularly troublesome for those who earn incomes on the cusp of the two systems who have difficult decisions to make about which scheme would work best for them. In most expert views, a universal, supply-side childcare model is the long term vision to which we should all be working.

9. Given this, in CPAG’s view it makes sense to align TFC and support for low-income parents under universal credit (UC) as far as possible. For example, TFC should use the same ‘work test’ as UC and it could operate with a tighter maximum income limit. Support could be limited to two children only as it is under the UC scheme or, better still, the limit on the number of children covered in UC could be raised using savings from TFC.

Invest savings from tax-free childcare in childcare support that benefits low-income parents

10. Savings that could be made by aligning TFC and UC childcare provision more closely could usefully be invested in extending supply -side provision . For example, it is well-evidenced that school buildings are under-utilised outside of normal school hours. Investing savings in extended school provision would be a more efficient and equitable way of providing childcare for higher and lower income parents alike. Likewise, s avings could be re-directed towards supporting additional hours of free entitlement for two to four year olds, which is well targeted as it has a particularly high take-up rate. Such funding also has the advantage that it can be used to incentivise and drive up quality, which demand-led schemes like TFC would struggle to achieve.

11. In addition, savings could also be recycled to improve support for low income families through tax credits and UC . While we are delighted that the government is committed to increasing support to low-income parents on UC to 85 per cent from 2016, we are concerned that this is undermined by the fact that the cap levels above which childcare support is not paid have not been uprated since 2005. Analysis has shown that if average childcare prices continue to rise in line with current trends, families with one child working full-time will reach the ceiling for childcare support in the near future. [3]

12. Families who pay above the average for childcare are already disadvantaged by the failure to uprate the childcare ceiling. Those requiring care in anti-social hours will pay a premium for this service; those with more than two children are penalised by the two-child limit placed on support; and families with a child with a disability who pay on average £12-14 an hour for childcare provision are profoundly disadvantaged. [4] At current levels, a family with one child with a disability therefore receives support covering little more than 13 hours childcare a week. In the light of this, in CPAG’s view, uprating the limits on support available under tax credits (and subsequently UC), should be a priority for government.

13. Finally, CPAG’s research directly with parents has highlighted that many parents struggle to find adequate support with childcare costs when they wish to undertake training and education. While some provision may be available – through educational providers, for example, and local authority schemes – there is no coherent or easily accessed source of support. In CPAG’s view, a review of childcare support available to low-income parents who wish to increase their earnings power by skilling up is long overdue, and we urge the committee to consider how this could be achieved.

October 2014