Universal credit 'will put a lid on aspiration'

Second earners and some single parents may be worse off under the Government's new Universal Credit's childcare provisions, according to an analysis by the Resolution Foundation and single parents charity Gingerbread.

Second earners and some single parents may be worse off under the Government's new Universal Credit's childcare provisions, according to an analysis by the Resolution Foundation and single parents charity Gingerbread.

The Government recently announced it was making an extra £300m available for childcare costs as part of Universal Credit from 2013. Under the new system, help with childcare costs will be extended to parents working below 16 hours a week on the same terms as presently offered to those working more than 16 hours, that is, they will get up to 70 percent of childcare costs of up to £175 for one child and £300 for two or more children paid.

However, the analysis says that this year parents on low incomes are already paying 50% more towards childcare costs than they did previously, following the reduction in eligible childcare costs from 80 to 70 percent in April 2011. "As a consequence, work incentives will be improved for single parents with "mini-jobs", but will be much worse than under the system prior to April 2011 for many single parents working at least two days a week and for second earners in couples on low incomes", it says.

It says that for families where no-one works more than 16 hours a week benefits payments will be reduced more slowly and they will be eligible for childcare credits so work "will generally pay, although not always very much". For many single parents working more than 16 hours a week and requiring childcare, the cut from 80% to 70% reimbursement of childcare costs has already significantly worsened the hours trap, says the report. This effect will persist under Universal Credit, it adds, and the rate at which tax credits are withdrawn as income rises has increased and will increase further. In addition, the "30 hour bonus" encouraging near-full time work will also be abolished. "All these factors will combine to worsen the hours trap for many single parents," says the report.

For second earners working part time in families with low overall income, the analysis shows the tax credit and benefits changes will only mean those on minimum wage will be about £1 better off for each hour worked. However, if they work part time for 16 hours or more a week and are on minimum wage they could lose out. Currently, they can gain about  £50 a week or more from working longer hours. Under Universal Credit, the gain will be less than £20 in some cases, says the report.

It concludes: "The government will spend approximately the same amount supporting childcare under Universal Credit as it did under the pre April 2011 system. It will put extra resources into enabling people to work short hours by helping them with their childcare costs, as well as making them eligible for other parts of Universal Credit. To pay for this, support for everyone has been reduced. This will particularly affect work incentives for people on modest but not very low wages, people working enough hours not to have any entitlement to Housing Benefit and second earners. Overall, it will mean that while Universal Credit helps some of the poorer families on benefits to become a bit better off, it will limit the potential for families on modest means to rise above a minimum living standard. For such families, it will put a lid on aspiration."

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