The poorest families will miss out on extra childcare support announced in the Budget because they earn too little to pay tax, according to the Resolution Foundation think tank.
The Foundation says that the focus on childcare support has been mainly on the childcare vouchers which will mostly go to better-off families and exclude those in receipt of tax credits.
The Government also announced support for those on universal credit. The Resolution Foundations says its analysis shows that at most four in 10 working families with children on universal credit will be eligible for the more generous level of support (85%) for the costs of childcare.
It says that under universal credit about 564,000 families (38 per cent of the total working families who quality for universal credit and have children) will be eligible to claim 85 per cent of childcare costs. The remaining 62 per cent – more than 900,000 working families – will not qualify because one or both parents earn too little to pay income tax. They will instead receive 70 per cent of childcare costs, as under the existing tax credit system, when the new scheme begins in 2015.
For working families receiving universal credit with children under 5 just under a third will qualify for the new support – 164,000 families out of a total of 524,000, says the Resolution Foundation.
It states: “The group most likely to be excluded from the more generous level of support will be the lowest income working families on universal credit with one or more parents working part-time on low pay. This contrasts with the separate system of tax relief announced for better off families who can claim up to £6,000 against childcare costs as long as a parent does not earn more than £150,000 a year.”
The Resolution Foundation adds that, due to changes in tax credit eligibility, some of the 900,000 families excluded from the new more generous support – around 200,000 – will still receive significantly more help than they would have done prior to universal credit as they will become eligible to claim whilst working under 16 hours.
Vidhya Alakeson, deputy chief executive of the Resolution Foundation, said: “Only a minority of working families in universal credit with children – 40 per cent at most – will be eligible for the new 85 per cent rate of childcare support. The rest have someone in low-paid, part-time work and so won’t benefit. It is completely wrong that these working families will be excluded from new support at a time when families on up to £300k will benefit from childcare vouchers.
“The government should be applauded for attempting to help families struggling with the costs of childcare but the truth is that those who are struggling the most are missing out. We are left with a complex two-tier system of childcare support within universal credit that gives less support to the least well-off.”