© Institute for Fiscal Studies Recession and recovery: what do they mean for childcare? Mike Brewer

Outline Working parents and the recession Working parents and spending cuts Tax credit cuts and childcare Universal Credit and childcare © Institute for Fiscal Studies

Parents (especially mothers) relatively unaffected by recession... © Institute for Fiscal Studies Source:

...although small falls in proportion of couples with two earners © Institute for Fiscal Studies Source: IFS analysis of Labour Force Survey, various quarters.

Working parents and spending cuts Some argue women disproportionately likely to be hit by public sector job cuts... © Institute for Fiscal Studies

Some argue women disproportionately likely to be hit by public sector job cuts... © Institute for Fiscal Studies Source: Analysis of Labour Force Survey by Jerome De Henau for the Women’s Budget Group

...but the unprotected public sector is little different from private sector... © Institute for Fiscal Studies Source: Analysis of Labour Force Survey by Jerome De Henau for the Women’s Budget Group

...and most working women with children are in the private sector © Institute for Fiscal Studies Source: Analysis of Labour Force Survey by Jerome De Henau for the Women’s Budget Group

Help for childcare through tax credits Childcare element of Working Tax Credit cut from 80% to 70% (saves £0.5bn/yr; affects all recipients of childcare element) But childcare subsidy affected by other tax credits changes –Increase in tax credit taper from 39% to 41% –Some elements of Working Tax Credit frozen, rest linked to CPI –Child elements of Child Tax Credit linked to CPI –Child elements of Child Tax Credit increased by £180 in 2011 plus £110 more in 2012 –NB: scaling back of family element does not affect implicit subsidy provided by childcare element of WTC, but does reduce family income Overall impact of tax credit changes on childcare tax credit? © Institute for Fiscal Studies

Changes to tax credits: what fraction of childcare spending is rebated? © Institute for Fiscal Studies Assumes: 1 child, £100 a week spending. For more children, subsidy could be received at higher earnings. All incomes in nominal (cash) terms.

Changes to tax credits: how much would parents have to pay for childcare? © Institute for Fiscal Studies Assumes: 1 child, £100 a week spending. For more children, subsidy could be received at higher earnings. All incomes in nominal (cash) terms.

Other tax and benefit changes affecting families with children Child benefit –Freeze for 3 years & remove from families with a higher-rate taxpayer Tax credits –Withdraw family element –Scrap extras for babies and (proposed) toddlers –Increase withdrawal rate to 41% –Freeze part of WTC, increase rest with CPI –Set of changes affecting how credits respond to income changes –Increase CTC above indexation Other benefit cuts: Local Housing Allowance, Employment and Support Allowance, Disability Living Allowance Taxes: NI contributions to rise, VAT to rise, personal allowance to rise © Institute for Fiscal Studies

Distributional impact of tax and benefit measures to be in place by 2014–15: by family type © Institute for Fiscal Studies

Childcare subsidies under the Universal Credit White Paper acknowledges problems with childcare tax credit –Complexity, lack of transparency, uncertainty...but has not decided on solutions Options –Broadly maintain current system, with parents responsible for reporting spend on childcare –Perhaps pay support in arrears, based on actual costs in previous months (so no under or overpayments) –Perhaps pass cash-flow problems onto providers? (eg replace credit with a £/wk or % discount voucher for parents to take to providers; providers are responsible for getting money from HMRC) –Perhaps replace credit in favour of earnings disregard Want to restrict support to working parents, but want to extend to some working <16 hours © Institute for Fiscal Studies