All work and no pay: Second earners’ work incentives and childcare costs under Universal Credit

Published on Tax and Welfare

A part-time cleaner with two children in childcare and working 25 hours a week would be £7 a week worse off than if she didn’t work at all while a part-time teacher with the same hours and childcare arrangements would be £57 a week better off under the Government’s new proposals to help working families with the costs of childcare.

All work and no pay highlights how extra support for childcare costs is skewed towards comparatively wealthier households, even among those who will qualify for universal credit. Higher earning families in universal credit will have 85 per cent of their childcare costs paid, while lower earning families will be able to recover only 70 per cent.

  • The financial incentives to work, taking into account the costs of childcare, are dramatically worse for a lower-paid second earner, such as the cleaner, compared to those who earn more but still qualify for universal credit, such as the teacher. Where working more hours actually reduces a family’s income, it undermines a central principle of universal credit – that work should always pay.
  • The imbalance in childcare help should be fixed by the government once it finalises its proposals after a 12-week consultation period which was launched this month. All families in Universal Credit, no matter how many hours they work, should have 85 per cent of childcare costs paid.
  • This could be funded by trimming the parallel system of childcare vouchers which the government is offering to families too wealthy to qualify for universal credit (earning up to £300,000 a year) and which allows them to reclaim up to £1,200 a year per child.