New research: the Cost of a Child in 2020 shows need to keep ‘Covid-19 bonus’ in universal credit and tax credits | CPAG

New research: the Cost of a Child in 2020 shows need to keep ‘Covid-19 bonus’ in universal credit and tax credits

Published on: 
29 October 2020
  • Cost of a child reaches £152,747 for couples and £185,413 for lone parents (pre pandemic)
  • Call to make the £20 weekly increase permanent to help low-income families

The Covid-19 temporary £20 per week increase in universal credit and working tax credits has enabled some low-paid working families with full-time jobs to get close to – or even just above – a minimum acceptable standard of living (or MIS, a no-frills, but adequate standard of living ), new research for Child Poverty Action Group (CPAG) shows.

Even some families with part‐time workers can almost reach the MIS level as a result of the ‘Covid-19 bonus’ if they are receiving universal credit (UC) and help with childcare costs, the research from Loughborough University for CPAG shows. But other families haven’t seen the same improvement in income. The addition of the ‘Covid-19 bonus’ doesn’t, for example, come anywhere close to compensating for previous earnings where people have lost their jobs or to closing the gap for families raising children on out-of-work benefits, the report shows.

The charity says the findings show the ‘Covid-19 bonus’ must be made permanent and extended to non-working families on so-called ‘legacy’ benefits such as jobseeker’s allowance so that families are helped to reach a minimum acceptable living standard post-pandemic. The ‘Covid-19 bonus’ started in April 2020 and is due to end in March 2021.

The Cost of a Child in 2020, the ninth in a series, provides a snapshot of how the cost of a child in 2020 compares to current incomes and the extent to which social security support helps families to make ends meet. Research for the report was conducted just before lockdown so cost calculations do not include any changes in families’ requirements caused by the different ways in which they have had to live during the pandemic.

The costs of a child are calculated according to a minimum standard of income (MIS) that covers the costs of essentials such as food, clothes and shelter as well as other costs necessary to participate in society. It looks at the needs of different family types and is informed by what ordinary members of the public feel is necessary for both couples and lone parents bringing up children (1).

In 2020 the overall cost of a child up to age 18 years (including rent, council tax and childcare) is £152,747 for couples (up 5.5% since 2012) and £185,413 for lone parents (up 19.6% since 2012).

With the ‘Covid-19 bonus’ in place, couples on working tax credit with both parents working full-time for the ‘national living wage’ can almost meet their minimum costs – their net income is 96% of costs. On UC, with the bonus, couple-parents in the same circumstances can just clear their costs - with a net income of 105% of costs. Couples on UC where one parent works full-time and one half-time for the ‘NLW’ also almost make ends meet with the ‘Covid-19 bonus’ (they have 99% of the MIS). If the uplift were removed, their income would be 94% of the MIS.

For lone parents, even with the ‘Covid-19 bonus’, working full time for the ‘NLW’ covers only 86% of costs if they are on working tax credits, 92% if they are on UC. But if they are on UC and can only work half-time, their income falls 15% (£38) short of the MIS even with the bonus.

Non-working families

For out‐of‐work families, the £20 ‘Covid-19 bonus’ goes to UC claimants but not those on ‘legacy benefits’, such as jobseeker’s allowance. The report finds non-working couples on legacy benefits have a net income that covers only 57% of their needs. Those on UC reach only 61% of their costs (with the bonus). Lone parents who are not working and receive legacy benefits have a net income covering only 60% of their costs; those who do not work and receive UC have only 65% of their costs covered, even when the ‘Covid-19 bonus’ is included.

The £20 ‘Covid-19 bonus’ in UC does, however, give a non-working lone parent with two children a nine per cent increase in disposable income.

Family size:

The additional £20 a week ‘Covid-19 bonus’ is a flat rate for any family and therefore not sensitive to need based on family size; so larger families gain less relative to their needs than smaller ones. Non-working couple-families who are on UC – and so receiving the bonus – still have incomes well short of what they need: with one child they are £224.27 short; two children £236.44 short; three children £257.79 short and four children £273.54 short.

The growing number of families with a third or subsequent child born after April 2017 still face the huge disadvantage of the two‐child limit, which gives no means‐tested benefits to help meet the needs of these subsequent children. This applies to working families on benefits as well as those on out‐of‐work benefits. As a result of the two-child limit, a family with three children (with the youngest born after April 2017) loses £54.27 a week, almost three times the amount gained from the ‘Covid-19 bonus’.

Childcare:

Childcare costs have continued to increase in 2020 and now make up the majority of the costs of raising a child for working couples (at 56%, up from 41% in 2012). The figure is 46% for working lone parents (up from 38% in 2012). Without a policy change, the costs will continue to present barriers to parents getting back into work or working more hours as the economy recovers from the pandemic.

Basic costs:

The basic costs of a child – ie excluding childcare and rent - are slightly lower in 2020 than in 2019 because of nearly zero inflation, but any additional costs as a result of the Covid-19 pandemic measures were not factored into the calculations.

The Cost of a Child in 2020 report recommends that Government:

  • Makes the £20 ‘Covid-19 bonus’ in UC and working tax credit permanent and extends it to jobseeker’s allowance, so that non‐working families on legacy benefits are also covered.
  • Puts in place a balanced long‐term strategy to support parents with meeting the costs of children, including an increase in child benefit to restore its real value before the cuts of the past decade, as well as increasing UC and child tax credit, which have also been eroded in recent years.
  • Abolishes the benefit cap, which penalises families with the highest costs.
  • Abolishes the two‐child limit, which penalises families with three or more children that require support to cover family costs.
  • Increases support for parents to work by paying universal credit help with childcare costs in advance and introducing a work allowance for potential second earners.

Chief Executive of Child Poverty Action Group Alison Garnham said:

Bringing in the ‘Covid-19 bonus’ in universal credit and tax credits was the right thing to do for the millions of families going through job losses and big income drops because of the pandemic. Our report shows that the extra £20 per week gets many families – although not all – closer to what the public considers a decent, if no frills, standard of living. Making the ‘Covid-19 bonus’ permanent, and extending it to out-of-work ‘legacy benefits’, would not in itself reverse all the cuts made over the past decade, or those still to come, but it would be a start on which to build a fairer and more adequate social security system. If Covid-19 has taught us anything it is surely that anyone can fall on hard times. Anyone can need a safety net. In the interests of protecting our most vulnerable children from the lifelong effects of poverty, the £20 ‘Covid-19 bonus’ should be retained.”

Author of the report Professor Donald Hirsch said:

“When in March, Rishi Sunak said he wanted to strengthen the safety net during the pandemic, he implicitly acknowledged it was not adequate to support those falling on hard times. Our research confirms this, and that its adequacy has deteriorated over the past decade. Between 2010 and 2019 the safety-net level for families had fallen by around 10-15% against our Minimum Income Standard benchmark. The 2020 temporary increases recoups over half of that cut for eligible families, providing a welcome change of direction, should it be sustained.”

Notes to Editors:

(1) The Cost of a Child studies are based on the Minimum Income Standards research which entails a sequence of detailed deliberations by groups of members of the public, informed by expert knowledge where needed. The research process involves agreement being reached by groups of members of the public, and then checked and rechecked by subsequent groups. Each group has detailed discussions stating its rationale for what should be included in a minimum household budget. The standard thus represents a considered, settled agreement on what is the minimum needed, rather than just a collection of subjective opinions held by individuals. For further information, see https://www.lboro.ac.uk/research/crsp/mis/. Author of the report Professor Donald Hirsch is Director of the Centre for Research in Social Policy, where he leads the Minimum Income Standard for the UK programme. An embargoed copy of the report is here

‘Net income’ refers to disposable income after rent, council tax and childcare. The costs in this release relating to whole families are calculated for a family with two children aged 3 and 7.

The figure showing the cost of a child to a lone parent is higher than that for couples because certain fixed costs of having children are offset by greater adult savings for the couple. For example, the costs of having a car are offset by greater savings on public transport fares when there are two adults not one.

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