Under the Universal Credit, lone parent families will gain nothing from working more hours and in some cases could be worse off after having to pay for additional childcare and seeing their benefits reduced and tax increased, reveals a new report.
Children’s charity Barnardo's warns it will be impossible for some of the UK’s poorest families to ‘strive’ their way out of poverty by working more than 24 hours (lone parents) or 35 hours (couples) per week as the Government has claimed when the Universal Credit is introduced in October.
Barnardo's is calling on the Government to urgently increase the proportion of childcare costs covered through the Universal Credit from 70-80 per cent, which it says will increase incentives to enter and progress in work as parents would retain more of what they earn rather spending it on childcare.
The charity is also recommending that the number of hours of free childcare be increased to 20 hours or more for three and four-year-olds. This would enable parents to reach 24 hours of employment that the Government has stated will lift them out of poverty under the Universal Credit, says Barnardo's.
Under the Universal Credit, families who work less than 16 hours a week will be able to claim support for up to 70 per cent of their childcare costs - up to £123 a week for one child, or £210 a week for two children.
According to the charity, lone parent families with two pre-school children, who work just ten hours a week will be subject to the Universal Credit taper and only keep £2.20 for each additional hour worked. Once they work beyond 15 hours they would need to pay a contribution towards childcare costs.
While 70 per cent of their costs are covered through the Universal Credit, this still leaves them having to find the remaining 30 per cent. This, combined with the withdrawal of Universal Credit as their hours increase, means that if the family used a childminder, priced at the national average, they would gain nothing from working more hours.
The report - - goes on to say that if they want to work beyond 23 hours their incentives worsen again as they become eligible to pay national insurance, and then after 28 hours, income tax. This means that they would need to pay 28p, and then 72p, for each additional hour they wanted to work.
All figures are based on the notion that parents are able to take advantage of the free offer of 15 hours of childcare for two, three and four-year-olds.
The report also highlights the costs of childcare depending on region. In the area with the cheapest childcare, Yorkshire and the Humber, for each hour worked between 16 and 23 hours lone parents earn 20p. Once they are eligible to pay tax and national insurance the effectively lose 50p for each hour worked.
In London, the region with the highest childcare costs, lone parents lose around 91p for each hour worked between 16 and 23 hours, £1.17 between 24 and 28 hours, and then £1.61 when they are subsequently eligible for tax and national insurance.
For lone parents with only one child below school age the incentives are slightly better as they do not have to pay for as much childcare. However, the report says that the incentives to progress in work are still relatively low.
According to the research, for a second earner the initial gains from entering work at lower hours are reduced compared to a lone parent family. This is because they will immediately be subject to the Universal Credit taper as their partner already earns above the earnings threshold.
After a second earner works 16 hours their incentives are similar to the lone parent family in keeping around £1.10 for each additional hour worked up until they become eligible to pay tax and national insurance, and 40p per hour thereafter.
Anne Marie Carrie, Barnardo’s chief executive, said, ‘The Government’s claim that work will pay for the UK’s most disadvantaged families under the Universal Credit is simply wrong.
‘Leaving the poorest without sufficient means to pay for childcare ironically risks pricing precisely those families who are in greatest need of the extra income out of work.
‘If we want the poorest parents to be genuinely able to work their way out of poverty, then they must be able to afford the costs of childcare. This is why we’re calling on the Government to provide more help to the most disadvantaged families.’