Warning over childcare expenses

Childcare costs mean going out to work full-time is now hardly worthwhile for a growing number of "second earners" in middle and low income families, according to a report.

In the most extreme case - where a second earner takes on a full-time job at the minimum wage - a couple who use childcare could be left just £4 a week better off with two incomes than they would be with one, the new study reported in The Observer says.

The report, called Counting the Costs of Childcare by the politically independent Resolution Foundation, finds childcare costs are also eroding incentives to work for those higher up the income scale.

Researchers found that a family with two children in which two earners bring in a total of £44,440 could end up just £4,000 better off than a similar family earning £20,000 less, because of the impact of benefits, tax, tax credits and childcare costs.

The report looks at elements of the system of state support which have the effect of cutting a family income in real terms, as a second earner works more.

A second earner from a middle income household who is paid £12 an hour will add £4,500 to the family income while working 13 hours a week. However, if he or she increases the hours above that level, the family income falls off as the combination of childcare costs and withdrawn support through the tax credit system bites into earnings. A middle income is defined for the study as one of between £17,000 and £42,000 for a family with two children in childcare.

Vidhya Alakeson, deputy chief executive of the Foundation and joint author of the report, said: "Despite progress over the last decade, the cost of childcare in the UK still eats up a very large slice of family incomes. It's hardly worth a typical second earner going out to work more than a couple of days a week because the family will be barely better off as the extra money is swallowed up by the costs of childcare.

"This is a serious concern because increasing the level of female employment is one of the key routes through which family living standards have increased. We need major change in our childcare system to ensure that work is always worthwhile - and that working more hours or a pay rise results in higher take home pay."

A Government spokesman said: "Childcare costs are far too high for parents and the system needs reform. A recent IPPR (Institute for Public Policy Research) report identified it as being 'expensive', 'inefficient' and 'confusing'.

"For too many families, the high costs of childcare mean it is not worth going back to work. That is why we set up a commission to look at the affordability of childcare earlier this year. We are looking at best practice in France, Germany, Denmark and the Netherlands, where high-quality affordable childcare is available for parents, and will be setting out proposals in due course."