Make work pay' plan undermined by rising childcare and transport costs

11 Nov 2010

Press Story

Nick Pearce, ippr Director, said:

'The Universal Credit is a welcome long-term reform. The principle of making work pay is the right one but it will be critically undermined by impact of previously announced cuts to tax credits and rising costs for childcare and transport.

'You can only guarantee that people will always be better off in work if their additional earnings are not wiped out by the costs of childcare and travel to work. Yet bus and rail fares are set for steep rises in the coming years, while the government has not worked out whether the Universal Credit can be used to cover childcare fees.

'Meanwhile, the amount of support that working families can claim for childcare through the tax credit system is being cut from 80 per cent of total costs to 70 per cent. Couples will also have to work an extra eight hours a week between them to be eligible for working tax credits but because this might not be possible in the current economic climate, they could see their entitlement cut, making work less worthwhile.Welfare reform must involve widening access to free or affordable childcare if we want to make work pay.'

ippr's full response to the White Paper has been published today.

Notes to editors

  1. Average childcare costs in England are £88 a week / £4,576 a year (Source: Daycare Trust 2010 Survey of Childcare Costs http://www.daycaretrust.org.uk/pages/childcare-costs-surveys.html)
  2. Childcare costs are estimated at £11,050 a year in London for 25 hours a week for one child under five, compared to £4,368 in Scotland.
  3. Parents who receive the full support for childcare - typically working mothers living in the south east - will lose as much as £1,500 a year from 2012, far more if they have two young children (Source: Resolution Foundation http://www.resolutionfoundation.org/news.html)
  4. The average family spends £42.30 a week on transport (cost of running a personal vehicles and public transport fares) - figures from 2008. (Source: Family Spending 2009 http://www.statistics.gov.uk/downloads/theme_social/Family-Spending-2008/FamilySpending2009.pdf)
  5. The Spending Review announced that rail fares will be allowed to rise by 3 per cent above inflation. The Office for Budget Responsibility's central estimates predict that RPI will be between 3.2 and 3.5 per cent each year over the period covered by the Spending Review. This means that fares can be expected to rise by around 6.5 per cent each year, and be over 25 per cent higher at the end of the period.
  6. ippr analysis shows that half of cuts to benefits will hit people in work and hurt the living standards of low paid working families. ippr has factored out the change in up-rating benefits by CPI rather than RPI and found that more than half of the remaining £12.8bn of benefit cuts impact people in work. Of those, at least £5.3bn of cuts will affect only those people who are in work and not people out of work.

The £12.8bn breaks down as follows:

  • £5.3bn of cuts that will only affect those people who are in work, including £2.8bn in tax credit payments and £2.5bn in child benefit from higher rate taxpayers.
  • £2.8bn of cuts that will only affect those people who are out of work - the vast majority of which is the time limiting of contributory Employment Support Allowance.
  • £4.7bn of cuts to benefits that are claimed by both those people in and out of work, including £1.8bn in housing benefit, £1.5bn in tax credits, almost £1billion in child benefit and just under £500m in council tax benefit.

Contact

Tim Finch, Director of Communications: 020 7470 6106 / 07595 920 899 / t.finch@ippr.org