Childcare costs pushing parents into debt

Most mums who are on middle to low incomes can't afford to return to work due to the cost of childcare.

With unemployment hitting levels not seen in seventeen years, it’s worth remembering one big issue which is holding back many women of working age from re-entering the world of employment – childcare costs.

Nursery costs for children under two range from an average of £5,028 a year for 25 hours a week up to £14,300 a year for the most expensive nursery (based on £11 an hour), according to research last year from the national childcare charity the Daycare Trust and Save The Children.

These figures are peanuts if you are a high flying City executive like, say, Nicola Horlick - dubbed “Superwoman” in the 1990s for balancing her City career with bringing up six children - but not if you are a basic rate taxpaying mum or earning a low income.

For some middle-income households, the cumulative costs of train season tickets, childcare costs and daily subsistence in expensive cities like London mean that it is simply uneconomical for a mum to return to work. The Social Market Foundation think tank points out that 10% of mums with children under the age of three chose to stay at home due to childcare costs.

Voucher schemes

However, it is not all bad news. Some larger companies offer generous childcare voucher schemes which enable working parents to save on their childcare costs, if they choose to return to work.

What’s more, taking advantage of these schemes can actually lower your tax bill. Employees can sacrifice part of their salary to purchase the vouchers in order to pay for registered or approved childcare, and as a result save on income tax and national insurance.

For more on childcare vouchers, check out this article.

Childcare as expensive as a mortgage

Research found that choosing to stay at home was a common occurrence for low income families along with turning down jobs or considering leaving work because they couldn’t afford to pay for childcare.

Save the Children and Daycare Trust highlighted that parents in Britain spend almost a third of their incomes on childcare, more than anywhere else in the world. The costs of childcare are on a par with 41% of families’ mortgage or rent payments.

And shockingly, despite many parents cutting back their spending, almost a quarter have got into debt because of childcare costs.

Government help

If childcare costs are a problem for new or experienced mums, should they not turn to friends, neighbours or family to do the babysitting? This would cost nothing. Well, it is not as simple as that. Some mums don’t have the luxury of reliable parents or strong community spirit to fall back on due to circumstance.

So should the coalition Government be doing more to help with childcare costs?

Yes it should, but sadly, at the moment, it is not. According to a report published last November by the Social Market Foundation (entitled The Parent Trap: Illustrating the growing costs of childcare), parents have been hit by the cuts to childcare support in the tax credit system, and the freeze in the value of childcare vouchers.

Ryan Shorthouse and Ian Mulheirn co- authors of this report, called on the Government to means-test child benefit and also to rethink how childcare is viewed.

Save the Children and Daycare Trust are asking the Government to increase the amount it plans to spend on childcare support under the new Universal Credit (to pay up to 80%  of childcare costs for low income families up to the current weekly maximum) “in a bid to prevent low income families from being priced out of work into poverty”.

At the moment if you’re working and you’re on a low income you might be eligible to get Working Tax Credit, but there are limits on the weekly costs you can claim. According to the DirectGov website, if you pay childcare for one child, the maximum you can claim is £175 a week; for two or more children, the maximum is £300 a week.

To work out whether you are eligible for tax credits, fill out this section of the HM Revenue & Customs website.

More help ahead?

There could be light at the end of the tunnel though. Last week Chancellor George Osborne announced the Government might be reviewing child benefit for middle income families, details of which will be announced in his forthcoming Budget in March.

Help from the Government is definitely needed if more mums are to return to work. Employers should also share the burden of childcare costs and flexible working, so mums have peace of mind, knowing that their child is being looked after while they are working.

What do you think? Should the Government offer more help to encourage women back into work? Let us know your views via the comment box below.

More: You're wasting your money with a SIPP | Pay as little tax as Tony Blair