One missed opportunity of the last Labour government was not reforming the tax and benefits system to ensure it is easier for people to move from benefits into work, so that everyone is better off in work. That is why many Labour people have broadly supported Iain Duncan Smith’s move to create a single system of financial support which removes help less quickly when someone enters work.

However, as the welfare reform bill has journeyed through parliament a major flaw has emerged which threatens to undo the entire project. The problem is how to help parents meet childcare costs. Currently provided via the ‘childcare element’ of the working tax credit, parents working more than 16 hours a week are able to claim up to 70 per cent of childcare costs (it was 80 per cent before April) up to a maximum of £175 per week for one child or £300 per week for two (with those on housing benefit getting more). However, under plans being considered by government this support could fall as low as 80 per cent of £100 for those with one child and 80 per cent of £150 per week for those with two or more. Thus a family with two or more children would be able to claim a maximum of £120 a week, down from £240 or more just a few months ago.

The key losers will be those with the highest childcare costs for whom these new caps are just too low, including large families, families with disabled children, those with children under three – whose childcare costs can be £40 to £50 per day – and those whose parents work full time or close to it. The Resolution Foundation has found that, even with more generous caps than the government is considering, a single parent with one child earning the minimum wage would keep only 6p of every pound earned for every hour worked over 24 hours a week and a second earner in a couple with two children on £7.20 an hour would keep only 9p of every pound earned over 20 hours a week, and take home no extra cash at all from working beyond 30 hours a week. When challenged ministers have acknowledged that their priority is to ensure that it pays to work a few hours in order to encourage people off benefits and into work.

The problem with this is that it may have profound implications for women’s participation in the labour market with lone parents and second earners (both usually women) having to effectively pay to go to work if they wish to return to their old job for more than 20 hours a week. This could lead to even more women having to ‘trade down’ their careers on returning to work, particularly after having second children. The employment minister, Chris Grayling, has said ‘There is no conscious intent to push people from full-time to part-time employment. That would not be right. This is about supporting individual choice.’ But some of the proposals under active consideration risk doing just that.

Commentators have suggested in the past that this government has got it in for women. Failure to quickly realise the implications of not properly funding childcare will lead others to believe they are right.

Photo: .DesertMonsterBell