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Childcare, Universal Credit and job entry

Welfare to work convention 20111 July, Charter 4

Development of tax credits

• Family credit disregard - 1994

• CCTC introduced WFTC - 1999

• Greater ‘responsiveness’ in WTC - 2003

• 32,000 getting FC disregard in 1997

• 318,000 in 2004 – average £43.67

• 493,000 in 2011 - average £69.23

The problem?

• Still only 14% of all families getting WTC report getting it (Parents Survey, 2009)

• 24% report paying for childcare ‘difficult/very difficult’

• Lone parents/couples – 34%/20%

• The higher the costs the more difficult (although more likely to be working)

Key problems

• Remaining 30% to pay (April 2011)

• Responsiveness/Complexity

• Fear of overpayments – 2005 package

• Keeping track – averaging

• Changes –eg, summer hols

• Only for those working 16 hours

• Parents pay the lion’s share – 70%

• Budget 2010 – overpayments will be back

Consultation 2008

• Options:

• Use actual costs

• Income bands

• Previous year

• Pay to providers

• Vouchers

• Pilots – 2 LDA, 2 HMRC

Options proposed by sector

• Switch in the main to supply-side

• Attach to child tax credit

• Pay 100% costs

• Return to fixed periods

• Separate out childcare element – pay hourly, locally, link to quality – as NZ

• Income bands best option

Universal Credit

• Started with blank sheet

• Disregard considered

• Flat-rate considered

• Decided on percentage costs up to maximum

• Funding envelope £1.7 bn increased to £1.9 bn

• To cover all working hours

Options being considered now

• Percentage of costs covered

• Maximum limits paid

• Hours rules

• Age of child

• Family type

Percentages and limits

• 70% childcare costs

• up to - £125 one child - £210 two or more

• 80% childcare costs

• up to - £100 one child - £150 two or more

• 620,000 families covered (DWP)

Keep hours rule?

16 hour rule as today:

• 70% - up to £160 one child - £270 two or more

• 550,000 families covered (DWP)

16 hour rule for couples only:

• 70% - up to £150 one child - £250 two or more

• 570,000 families covered (DWP)

Age of child

• Pay, only if youngest under age 5:

• 80% - up to £175 one child - £300 two or more

• Vary limits by age of child

• Around 620,000 covered (DWP)

• School-aged children?

Effect of taper

• 65% taper means tapers off at lower earnings level for some families

• Capital rules apply to working families

• Tariff income - £1 per week deducted for each £250 between £6,000 and £16,000

Winners and losers

Winners:

• Those working under 16 hours

• If 80% - higher proportion covered (?)

• Increased take-up (?)

Losers:

• Currently getting up to 95.5% of costs covered due to HB, CTB disregards

• Higher costs will be limited by new, lower maxima

• Higher earners and those with capital > £16k

DWP estimates

Option 70% to £125/£210 80% to £100/£150

Total – TCs or UC 680,000 680,000

Receiving more from UC

400,000 430,000

Av. Incr. (Wkly) £50 £50

Less from UC 280,000 250,000

Av. Loss (Wkly) -£30 -£35

Other effects

• 240,000 have lower entitlement simply due to move to UC• Transitional protection• Preference (?) for working part-time• ‘parents with young children should be supported to work

a small number of hours’• Considerable proportion left for families to pay

Key considerations:• Marginal deduction rates (METRs)• Disincentives to work entry• Disincentives to progress in work• Size of funding envelope

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