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Childcare, Universal Credit and job entry

Childcare, Universal Credit and job entry. Welfare to work convention 2011 1 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

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Childcare, Universal Credit and job entry

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  1. Childcare, Universal Credit and job entry Welfare to work convention 2011 1 July, Charter 4

  2. 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

  3. 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)

  4. 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

  5. Consultation 2008 • Options: • Use actual costs • Income bands • Previous year • Pay to providers • Vouchers • Pilots – 2 LDA, 2 HMRC

  6. 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

  7. 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

  8. Options being considered now • Percentage of costs covered • Maximum limits paid • Hours rules • Age of child • Family type

  9. 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)

  10. 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)

  11. 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?

  12. 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

  13. 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

  14. DWP estimates

  15. 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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