Deciphering Impacts: Childcare Dynamics Amid Recession and Recovery

1. Recession and recovery: what do they mean for childcare? Mike Brewer

2. Outline • Working parents and the recession • Working parents and spending cuts • Tax credit cuts and childcare • Universal Credit and childcare

3. Parents (especially mothers) relatively unaffected by recession ... Source: http://www.statistics.gov.uk/downloads/theme_labour/worklessness/Table_4_Calendar_Qtrs.xls

4. ...although small falls in proportion of couples with two earners Source: IFS analysis of Labour Force Survey, various quarters.

5. Working parents and spending cuts • Some argue women disproportionately likely to be hit by public sector job cuts ...

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

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

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

9. 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?

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

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

12. 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

13. Distributional impact of tax and benefit measures to be in place by 2014–15: by family type

14. 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