Changes to eligibility for benefits and reduction in amount paid leave working families struggling to make ends meet, writes Jeff Salway
MORE parents in Scotland will be forced to cut their working hours or even quit their jobs after tax credit cuts set out by the chancellor piled further pressure on families already struggling to meet soaring childcare costs.
Parents in Scotland spend 27 per cent of their income on childcare
George Osborne used the summer Budget to set out reductions in the income threshold for tax credits, a limit in child tax credit from April 2017 to the first two children and the abolition of the family element of tax credits. The proposed cuts will cost millions of families an average of £1,000 a year, according to the Institute for Fiscal Studies, including an estimated 250,000 in Scotland.
“The cut to child and working tax credits will be a big blow for many families who are living right on the edge and rely on that income to keep them afloat,” said Rob Gowans, spokesman for Citizens Advice Scotland (CAS).
The tax credits shake-up came just weeks after the Scottish Government was urged to provide more flexible quality childcare. The Commission for Childcare Reform called on Holyrood to ensure that families have access to 50 hours of free or subsidised childcare a week throughout the year. Families north of the Border are currently entitled to 600 hours a year of funded early learning and childcare, typically provided by local authorities through state nursery schools. However local authorities in Scotland don’t have a statutory duty to provide affordable childcare, unlike those elsewhere in the UK.
Only 15 per cent of local authorities in Scotland have sufficient childcare to meet the needs of working parents, according to the Family and Childcare Trust, compared with 43 per cent in England and 18 per cent in Wales.
The commission proposed that Westminster and Holyrood create an account for each child through which all money used to pay for childcare is channelled to providers (both private and public sector), and it recommended increased subsidies for families in deprived areas.
The average annual cost of childcare in Scotland is over £5,000 for 25 hours of care per week for children under the age of five, according to research by CAS. It said parents in Scotland spend 27 per cent of their household income on childcare, more than double the OECD country average.
A report by Gingerbread and the Child Poverty Action Group found that the risk of poverty increased by a third for children whose parents pay for childcare. It warned that costs continue to rise at a rate significantly outstripping wages. Meanwhile the latest Family and Childcare Trust survey of costs in Scotland revealed that part-time childcare for two children under five costs more than the average mortgage.
But parents struggling to meet childcare costs were dealt a fresh blow with the proposed changes to child and working tax credits, said Gowans of CAS. “Advisers report they are seeing many parents who have been forced to cut their hours or even give up work altogether because the support provided through the tax credits system doesn’t cover their high childcare costs.”
He expressed concern that more working parents will be forced to quit jobs because they can’t afford childcare. Gowans pointed to figures from the GMB Union suggesting that 80 per cent of families in Scotland who receive tax credits are set to lose at least £23.72 per week.
It was also revealed in early July that the UK-wide tax-free childcare scheme, scheduled to launch in September, is now on hold until 2017 following a legal challenge over who would operate it. The scheme, replacing employer-supported childcare vouchers, will provide working parents (including part-time and self-employed workers) who have children up to age 12 (rising to 17 for children with disabilities) with tax-free vouchers worth up to £2,000 per child.
The challenge facing families struggling to meet childcare costs will be exacerbated by the launch of universal credit, being rolled out over the coming years. Additional support received by thousands of low income families through housing benefit and council tax benefits will be lost under universal credit, resulting in some families paying up to seven and a half times more towards their childcare costs than under the present system, the Children’s Society has warned.
The main help with childcare costs tends to come through employer-supported schemes and the childcare element of tax credits. The latter can pay up to 70 per cent of eligible childcare costs to a maximum of £175 a week for one child and £300 per week for two or more children, subject to eligibility rules. In addition, parents in Scotland with three- and four-year-olds (and, from next month, two-year-olds from disadvantaged households) can claim up to 600 hours of funded early learning and childcare a year, which the SNP has pledged to increase from 16 hours a week to 30 hours a week if it wins next year’s Scottish parliament elections.
However, that is of limited use to parents unable to find council nurseries offering suitable hours, says Reform Scotland. The think-tank wants the Scottish Government to introduce “virtual vouchers” that could be used at all nurseries meeting Education Scotland and Care Inspectorate standards.
It had been hoped that the Smith Commission, tasked last year with setting out further powers to be devolved to Scotland, would include measures on childcare costs. However, the report made no mention of childcare, an omission described by the Joseph Rowntree Foundation as “remarkable”.