Charity warns poorest families will lose out under new childcare policy

Gingerbread is concerned that the plan for childcare support under Universal Credit creates a two-tier system which leaves the lowest earners with the least support and that planned increases to the personal tax allowance will only exacerbate the issue.

The charity is urging Chancellor George Osborne to rethink the plans, which is says will discriminate against parents whose earnings are below the income tax threshold.

Gingerbread, which provides advice and practical support for single parents, said that under the new Universal Credit system, parents earning above the income tax threshold (due to rise to £10,000 in April) will be able to claim back 85 per cent of childcare costs but those below it will be able to claim only 70 per cent, meaning that, effectively, families on the lowest incomes will pay double for their childcare.

It said that with both of the coalition parties reportedly planning to commit to further personal tax threshold rises, even more parents look set to stop paying income tax but see their childcare costs double.

The charity said that, while the average weekly wage has not increased in the last 10 years in real terms, childcare costs have risen – by as much as 37 per cent for nursery fees for children aged over two.

Under the new system, a single parent with two children working 24 hours a week on the minimum wage could pay around £145 per week for a childminder. Claiming back 70 per cent of childcare costs would see them still having to pay around £45 per week. But with 85 per cent support from the Government the parent would only pay around £22 a week, the charity said.

A spokesman for the Department for Work and Pensions said: “The reality is that under Universal Credit parents with low incomes will face much more generous childcare support, with people working fewer than 16 hours becoming eligible for this help for the first time. This is expected to help 100,000 more families.

“We are investing an extra £200m under Universal Credit, on top of existing spending, to cover up to 85 per cent of childcare costs for taxpaying families. This will act as a greater cash incentive for families to increase their hours and earnings in work and if possible eventually move off benefits.”