The Cost of a Child in London: help with childcare fees ‘woefully inadequate’ | CPAG

The Cost of a Child in London: help with childcare fees ‘woefully inadequate’

Published on: 
10 June 2021
  • Universal Credit provides only enough childcare support to enable London parents to work about half the time. 
  • Even part-time jobs won’t pay for some if limits on childcare support stay frozen
  • London families can pay over twice as much for childcare for young children as families outside London

High childcare costs and failure to uprate support are putting full-time jobs beyond the reach of low-earning London parents who don’t have anyone to provide free childcare, a new report warns.  And a growing number of even part-time jobs won’t make work pay for hard-up Londoners with young children if caps on childcare support in Universal Credit remain frozen while childcare costs continue to rise. 

Universal Credit (UC) claimants can get help with up to 85% of their childcare costs but the total fees to which this is applied has been capped at the same levels since 2005, even though childcare fees have more than doubled in that time.  

Families can claim 85% of up to £175 a week for one child and 85% of £300 for two or more.  Children aged 3 or 4 are entitled to 15 hours of free childcare each week, or 30 hours if both parents are in paid work. There is also support for some 2-year olds whose parents are on a low-income.

Childcare costs are on average  over 10% higher in Outer London than in Britain as a whole;  in Inner London, they are over 30% higher than the average, and over 50% more than in the lowest- cost regions

London families face the same cash limits on help with childcare costs in UC as families elsewhere in Britain but because London childcare costs are higher, the limits have a greater impact on families in the capital, the report shows. As a result, they can actually end up paying over twice as much on childcare, net of the Universal Credit subsidy.  

Children in London- extra costs, by Loughborough University for Child Poverty Action Group, finds that UC provides enough support to keep childcare affordable and make work pay in London, but only for  up to about half of a full-time job, or more in some cases where a three or four year old (and in some cases a two year old) gets some free hours under the Early Years Entitlement. But, particularly for families with children under three, the high cost of childcare in London increasingly restricts how many hours they can work.

Overall, excluding housing, family costs are well over £100 a week higher for a couple with two children in London than outside it.  Most of this is due to higher childcare costs.  

Child Poverty Action Group (CPAG) is calling for fundamental reform of childcare, with provider-funded, free universal childcare for all children through to secondary school age. Extending school hours from 8am-6pm to provide a range of extra-curricular activities would then allow parents of secondary school age children more flexibility in the workplace. 

As an interim measure, Universal Credit should be reformed so that it covers 100% rather than 85% of childcare costs and payment must be provided upfront rather than in arrears. In addition, the cap on childcare costs must be reviewed and updated regularly to reflect any increases in childcare costs, including with reference to high-cost areas like London. 

Children in London- extra costs finds:

•    For families with a parent working part time

A London family with one child needing 25 hours childcare will not quite reach the weekly limit in UC support  (of 85% of £175)  if their childcare fees are average -  but if their fees are slightly above average they will hit the limit. For two children requiring 25 hours childcare, for whom the combined limit is 85% of £300, the limit will usually be reached in Inner London, and in about half of cases in Outer London. Where at least one child is aged 3 or 4, the 15 hours subsidy will help keep costs down to below the limit. Where the limit is not reached, an hour of childcare, which costs approximately £6 in London, will cost only 90p to a family on Universal Credit, preventing them from being worse off from working additional hours – although after deductions the gains are modest for those on the ‘National Living Wage’ (see Box 2 below). 

•    For families with a lone parent or couple-parents working full time

Full time childcare for two children aged 3 and 7 costs over £300 a week in London, compared to just over £200 for a family in the Midlands.

But even this understates the difference in the cost to families, since the cost of full-time London childcare generally exceeds the cash limit on support in UC so families in London pay much more to make up the difference between the limit on support and their actual childcare fees, than parents elsewhere. This makes the cost to the London family over twice as high as outside London for children too young to benefit from the Early Childhood (30 hours) entitlement. 

Commenting on the report’s findings, Chief Executive of Child Poverty Action Group Alison Garnham said: 

“Support for childcare fees in universal credit is woefully inadequate. Too many low-income London families are trapped in poverty because childcare costs in the capital are sky-high - and rising - but cash limits on support are frozen.  Absurdly that means many parents see little or no gain if they work more hours.  If the Government wants families to get better off through work, it must as a priority align the level of help with childcare fees with the real-world costs to London families.”

Author of the report and Director of the Centre for Research in Social Policy at Loughborough University Professor Donald Hirsch said: 

“Over the past 20 years, successive governments have tried various complex measures to help parents to work by helping them with childcare costs. Yet none of these have been sufficiently responsive to the needs of families or to the inexorable rise in charges for childcare provision. There’s a simpler way, adopted by many other European countries: pay state subsidies directly to providers to keep charges down to low, affordable levels.  This would ensure that no parents are prevented from working because their take-home pay is less than the cost of having their children cared for in a good quality setting.”

Box 2   Returns to working additional hours: family on Universal Credit paying for childcare

Childcare in London costs approximately £6 an hour.

The National Living Wage pays £8.72 an hour. This sounds like enough to cover an additional hour of childcare, and have a bit left over. 

However, where a parent in a family on Universal Credit works an additional hour on this wage, the change in family income, before childcare costs, will be much less than £8.72. Additional earnings trigger reductions in UC, with the family losing 63p for each extra £1 earned. On this basis the hourly National Living Wage will raise income by no more than £3.23 an hour. Also, for someone working at least 21 hours a week on this wage, National Insurance Contributions will be payable, reducing net income to £2.84 for each hour worked. And if working at least 28 hours, income tax will also be payable, reducing it to £2.19.

None of these amounts are anywhere near enough to cover the £6.00 for an additional hour of childcare. 

However, if the £6 extra childcare cost incurred qualifies for 85% support under Universal Credit, the cost to the family reduces to 90p. In this case, disposable income after childcare costs will increase by between £1.30 and £2.30 as a result of working that extra hour: a very modest gain, but at least not a reduction. But where childcare costs reach the maximum eligible for support in UC, the family will have to pay the full £6.00 for each additional hour, and be considerably worse off as a result.


Notes to editors:
Children in London- extra costs is here. The report draws on evidence from studies of minimum household costs in London to comment on the size of differences in children’s costs in various categories.  The analysis builds on new research on a ‘Minimum Incomes Standard for London’, compared to the Minimum Income Standard (MIS) for the UK as a whole and also draws on the approach developed in the Cost of a Child studies for the Child Poverty Action Group.  All these studies use as a benchmark the minimum cost of maintaining an acceptable living standard, based on what groups of members of the public say is essential in the MIS research.

CPAG media contact: Jane Ahrends 07816 909302