New Clause 8 - Review of childcare tax credit amounts

Welfare Reform and Work Bill – in a Public Bill Committee at 9:25 am on 20th October 2015.

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‘The Secretary of State must at least once a year review the level of the Childcare element of the Working Tax Credit entitlement sums to determine whether it is appropriate to increase or decrease any one or more of those sums.’—(Emily Thornberry.)

This New Clause would require the Secretary of State to review the childcare tax credit entitlement sums.

Brought up, and read the First time.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

I beg to move, That the clause be read a Second time.

Like housing, the cost of childcare has weaved its way through these debates, as we have considered a Bill that places significant new burdens on working families with children. The rising cost of childcare is not a new phenomenon, but it has certainly made life more difficult in recent years for working parents, who have seen their incomes largely flatline, whereas the cost of childcare has been going up.

According to figures compiled by the Family and Childcare Trust, the costs for preschool children have increased by 20% in real terms over the past decade. Between 2007 and 2013, the proportion of families who said that they found it either difficult or very difficult to pay for childcare increased from 18% to 26%. In the past five years, as prices have continued to outstrip wages, the trend has worsened to the point where the average family will pay an additional £1,500 a year in nursery fees compared with what they paid in 2010.

The impact on families with the lowest incomes, regardless of whether they work, has been particularly alarming. Children living with parents who have to pay for childcare are now a third more likely to live in poverty once those costs have been taken into account. The Bill, which attempts to redefine poverty by focusing on whether anyone in a household works, instead of on how much working households can earn, will effectively ignore the problem. That does not make it any less real, however, for real families in the real world, and it should not blind the Committee to the fact that there is a lack of consistency in the Government’s approach, which seeks to impose strict requirements on parents to support themselves solely through work while providing less and less support to cover the costs of the childcare that would make work an option.

It is significant in that context that 41% of parents who responded to a survey carried out by Citizens Advice last year said that the cost of childcare either prevented them from working at all, or, if they already worked, prevented them from increasing their hours. That will not be helped by a promise to increase the  number of hours of childcare available, as long as the promise simply remains a promise and is, frankly, no more than an unfunded commitment. We have discussed that commitment at length during previous debates in this Committee and the fact that the Childcare Bill, which is currently making its way through the other place, is a four-page Bill, which does not increase the confidence of Opposition Members that this pledge is realistic.

The most obvious concerns—I will not rehearse them all this morning—are that the extension is inadequately funded; that the Government have yet to outline their plans for increasing the number of childcare places to meet any increase in demand; and that we have had no indication that any additional support will be made available for single parents who will be expected to be available for work as a result of measures in this Bill. It seems telling to us that when we put forward an amendment saying effectively that no parent should be forced to work unless adequate childcare is in place, Government Members felt it necessary to vote against such a reasonable amendment. That group of people will be hit particularly hard by the regressive four-year freeze on working-age benefits and tax credit, which clauses 9 and 10 provide for. I remind the Committee that single parents make up 56% of families receiving both working tax credit and child tax credit. If the extension of free hours is inadequately funded—I would welcome any evidence to the contrary—it is inevitable that the out-of-pocket costs parents are forced to pay will increase as sharply in the next five years as they have in the past five years.

Freezing the level of working tax credit, under which working parents can claim reimbursement for up to 70% of their childcare costs, is particularly counterintuitive if the aim is to make work pay, as the Government continue to insist it is. If we assume that childcare costs will rise at the usual pace over the four years during which the payments are frozen, the amount that working parents will be able to claim for support with childcare costs will fund fewer and fewer hours each year. In those circumstances, the only option for many parents will be to cut back on the hours they work, which would seem to be at odds with the underlying principle of the so-called Welfare Reform and Work Bill. Parents who take such a step, which the Bill as it stands would make an entirely logical choice, will leave themselves open to harsh penalties under the sanctions regime if they find themselves unable to work altogether.

New clause 8, which would require the Secretary of State to undertake an annual review of the childcare element of working tax credit, would not require that the sums involved necessarily be increased, but would simply acknowledge that a four-year freeze in all benefits and tax credits is an extreme measure that will tie the Government’s hands in all circumstances. Economic growth may, for example, significantly exceed expectations over the next four years—that seems unlikely, but it is possible. Were that to happen, the freeze might prove unnecessary and more extreme in its effects, widening the gulf between the incomes of low-income families and the costs they are expected to cover.

It might also be the case—this seems somewhat more likely—that the promised extension of free childcare will not materialise according to the Government’s plans. In that scenario, significant costs will continue to fall to parents, whether they are working or looking for work.  I would like to think that, in such circumstances, the Secretary of State would be open-minded enough to admit that tax credit payments specifically earmarked to cover working parents’ childcare costs might need to increase at a level that was adequate to ensure that those costs remained affordable. If the intention behind the Bill is, as the Government say, to give people an incentive to work and to ensure that work always pays, more flexibility is surely called for.

Photo of Priti Patel Priti Patel Minister of State (Department for Work and Pensions)

A very good morning to the Committee.

The new clause seeks to ensure that the Secretary of State would have to review the level of the childcare element of working tax credit annually, and that that review would be used to determine the maximum rate at which that element was set.

By way of background, I should say that the childcare element, like a number of other elements of tax credits, has never been automatically increased as part of an annual review, but we do keep it under review. Indeed, since its inception in 1994 as part of family credit and disability working allowance, it has increased from a starting rate of £40 per family towards the costs of childcare to its present-day level, where the Government contribute 70% of childcare costs up to £175 a week for one child or £300 a week for two or more children. Under universal credit, as the Committee has discussed, that will increase to 85% of childcare costs.

In addition, the Government have taken significant steps to increase support for childcare for working families, including by extending free entitlement to childcare for working parents of three and four-year-olds to 30 hours—an increase on the 15 hours allowed for in the last Parliament—and by providing for 15 hours of free childcare a week for two-year-olds from disadvantaged backgrounds. We also have the forthcoming introduction of tax-free childcare, which will benefit up to 1.8 million working families by up to £2,000 per year per child, or by up to £4,000 per year for disabled children.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

I have been sitting here processing what the Minister has said, and I believe that she told the Committee at the outset of her speech that the Government have kept the cost of childcare continually under review. If that is right, there is not a huge gap between us. Given the alarm that is spreading across the country over cuts in benefits and whether working families will be able to make ends meet, would it be a good idea to give a commitment today that the review will happen annually? We would not need to discuss the matter any further.

Photo of Priti Patel Priti Patel Minister of State (Department for Work and Pensions)

We take the view that the new clause is not needed. The childcare element has never been included in formal annual uprating reviews, and the Bill does nothing to change that. The Government already keep the level of the childcare element under review, as we have said. We are committed to helping families with childcare through some of the areas to which I have already alluded. On that basis, the new clause is not needed and I urge the hon. Lady to withdraw it.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

This was largely a probing new clause, and I am grateful to the Minister for her response. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.