The majority of low-paid working families will not qualify for the full amount of state help towards their childcare costs promised in the Budget, according to the first study of its impact.
The Resolution Foundation think-tank found that only four in 10 low-paid families will see 85 per cent of their childcare bill met by the Government. The findings brought into question George Osborne's pledge that the help for people relying on tax credits will be more generous than at present, and will fuel criticism that his package aids the middle classes more than hard-up families.
Until now, most attention has focused on the announcement on Tuesday that working parents would qualify for 20 per cent tax relief on childcare costs, up to a maximum of £1,200 a year for each child from 2015. This will benefit the better off.
Outlining his £1bn plan, the Chancellor said: "To the working parents struggling with the costs of childcare, and the mother wondering whether it makes financial sense to get a job, we offer this: tax free childcare. New tax-free childcare vouchers for working families: 20 per cent off the first £6,000 of your childcare costs for each child. And increased childcare support for those low income working families on universal credit."
The Government has provided £200m for low income families, so that 85 per cent of their childcare costs would be met under the new universal credit from 2016 – more generous than the 70 per cent under existing tax credits.
But the foundation's analysis shows that 564,000 low income families (38 per cent) will see 85 per cent of their childcare bills covered but more than 900,000 (62 per cent) would receive only the current 70 per cent – the rebate which applies when one or both parents earn too little to pay income tax. It warned that many part-time workers will miss out.
Vidhya Alakeson, the foundation's deputy chief executive, 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 £300,000 will benefit from childcare vouchers."
She added: "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."
The think tank found that just under a third of working families on universal credit with children under five – 164,000 out of 524,000 – will qualify for the extra support.
Julia Unwin, chief executive of the Joseph Rowntree Foundation, said: "Recognising the burden of childcare costs is a start, but the extra help in the new tax-free childcare policy barely benefits those on the low incomes, nor makes up for the shortfall from previous cuts to childcare tax credits.
"Knowing support is coming in three years' time provides little comfort for those who are struggling to make it through to the end of the week."
Case study: The family
Sarah Brockwell, 42, runs her own marketing company. She lives in Great Dunmow, Essex, with her husband Roger, 45. Their children, Edward and Florence, are aged 4 and 2.
"The Budget was good, bad and ugly. The personal allowance is obviously good. I have my own small business so the corporation tax cut is a positive thing, as is the National Insurance threshold. But we have been sold this pitch of a Budget for an 'aspiration nation'. I think: 'What are we aspiring to?'
I know people who are in this "childcare trap" – women working part-time who would love to increase their hours and it is just not financially viable. Considering Mr Osborne put so much value in rewarding hard-working people, there are people who really want to work hard but are unemployed, or it is just not financially viable. I never dreamed that my town would introduce a food bank. Fortunately, we don't need it but we shouldn't forget how many households live in poverty."