Poorest families to miss out on £1,000 a year for help with childcare under voucher system

Government’s flagship proposal risks short-changing the very people it is intended to support

Political Editor

Nearly one million of Britain’s poorest families are to miss out on £1,000 a year for help with childcare, new analysis reveals today.

The Government’s flagship proposal to give struggling families childcare subsidies – to be given the green light by George Osborne in this month’s Budget – risks short-changing the very people it is intended to support.

Analysis by the Resolution Foundation think tank reveals the extent of a loophole in the scheme which is likely to affect 900,000 households on the lowest wages. Under the Chancellor’s £2bn childcare plan, families who qualify for universal credit will have 85 per cent of their childcare costs subsidised, but only if there are two earners paying income tax. In households with two earners who are eligible for universal credit but one or both parents do not pay income tax, 70 per cent of childcare costs are met by the government.

The difference amounts to £20 a week, or around £1,000 a year, in childcare payments. Those families affected will be forced to pay more in childcare costs than those on higher earnings. The Resolution Foundation, which calculated the figures, said it supported the Government’s childcare policies but called on the Chancellor to close the loophole. The scale of the poor families missing out is likely to cause anger, particularly because Mr Osborne is also expected to confirm £1,200 in the form of tax-free childcare vouchers for people not eligible for universal credit who have a combined income of up to £300,000. Analysts suggest that reducing the upper threshold to £200,000, for example, could allow some of the £2bn expenditure on the childcare plan to close the loophole and help the poorest families.

The new voucher plan will be introduced in 2015, while the universal credit payment for childcare will be brought in from 2016. Childcare costs in Britain are among the highest in Europe, and it is often the deciding factor on whether parents – mainly mothers – go back to work.

Many of the households affected will have one parent in low-paid, part-time work. The analysis by the Resolution Foundation shows that a family with a gross income of £21,000 – a main earner on £7.50 an hour and a partner who is paid the minimum wage of £6.31 – with annual childcare costs of £6,800 (the average for England) would receive a 70 per cent subsidy. They would pay £2,040 of their own money towards childcare – or 7 per cent of their net income.

A second family with a gross income of £33,000, where both parents  pay income tax and qualify for universal credit, would see 85 per cent of their annual childcare costs of £6,800 met, leaving them with £1,020 to pay – 6 per cent of their net income.

A third family, with a gross income of £87,000 where both pay income tax but do not qualify for universal credit would be able to claim up to 20 per cent of their childcare costs of £6,800. This would leave them with £5,440 to pay – 9 per cent of their net income.

Vidhya Alakeson, deputy chief executive of the Resolution Foundation, said: “With some relatively simple changes ... such as reducing the level of income eligibility, it would be possible to extend the more generous level of childcare support to all working families who qualify for universal credit. It’s the poorest working families who find the cost of childcare the biggest barrier to taking on more work.”

Shadow childcare minister Lucy Powell said: “This is affecting many more families that previously thought. The Government must come up with a solution quickly.”

Figures obtained by Labour show that the number of children in families where parents want to work full- time but are forced into part-time jobs has increased by 46 per cent since David Cameron came to office.

Catherine McKinnell, shadow Treasury minister, said: “Getting parents into work should be the key step towards ... reducing the number of children living in poverty. But for far too many families at the moment being in work just isn’t enough.”

Start your day with The Independent, sign up for daily news emails
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
News
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
news
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA celebration of British elections
  • Get to the point
2015 General Election
May2015

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Recruitment Consultant / Account Manager - Surrey / SW London

£40000 per annum + realistic targets: Ashdown Group: A thriving recruitment co...

Ashdown Group: Part-time Payroll Officer - Yorkshire - Professional Services

£25000 per annum: Ashdown Group: A successful professional services firm is lo...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before