Chancellor missed an opportunity to help parents with above-inflation rises in childcare costs

Chancellor Rishi Sunak ignored calls to increase financial support for parents in the Budget last week. 

Last year, the Conservatives pledged to create a fund to create more affordable childcare.

The cost of childcare has outstripped inflation in the last year and many parents face the prospect of giving up work, thanks to the struggles of affording nursery places. 

Claire Harding, head of national charity Coram Family and Childcare, slammed the Government for not doing more in the Budget last month. 

She said: ‘Childcare costs across the UK have risen by five per cent this year and for too many families work simply isn’t paying.

‘Childcare is a smart investment which boosts our national productivity – it helps keep parents’ skills in the workforce now, and helps children do better in school when they’re older.

‘We’re really disappointed that the Chancellor hasn’t done more to support families and boost the economy with better funding for childcare.’

Junior Isa boost?

One positive change for parents was the announced increase Junior Isa limit from £4,368 to £9,000 in the 2020-21 financial year. 

While this was welcomed by some, it was also slammed by others for not helping the majority of parents who are struggling to pay for childcare costs.

Becky O’Connor, personal finance specialist at Royal London, said: ‘Junior Isas are a great way to give your children a head start in adult life with a pot of money behind them. 

‘In reality though, most people save far less into them than the maximum. According to HMRC figures, the average subscription in the 17/18 tax year was £994 per account.

‘So raising the threshold is a bit of an empty gesture for all but the wealthiest Isa savers, who are the most likely to reach this maximum amount.’

Some were also disappointed that more reform to Jisa structure had not been made.

Neil Lovatt, commercial director at Scottish Friendly, says: ‘More than doubling the JISA allowance is not what the country or this industry needs. 

‘It’s just another whopping middle class tax-break on top of a £2billion pension giveaway.

‘This increase will only serve the rich, wealthy and well advised and not the millions of parents and grandparents who want to save and invest for their children.

‘It would have been far better to use these resources to enact some of the reforms to Jisas that we have been calling for, such as enabling grandparents to set up Jisa for their grandchildren rather than waiting on the parents to make the first move.

‘This is far from a reform “for the people,” it’s just a wealthy giveaway disguised as progressive politics.’

Financial struggles with childcare

This criticism comes after Coram Family and Childcare warned last month that many parents will be forced out of work or stuck in lower skilled-jobs if nothing is done about above inflation price hikes in the cost of childcare.

The Coram Family and Childcare’s 20th childcare survey found that British parents are now paying between four and five per cent more for childcare than they were a year ago.

It means parents are paying an average of £131.61 a week or over £6,800 a year for a part time nursery place.

This far outstrips the rate of inflation, recorded at 1.8 per cent in January this year.

While there is financial support for parents, this hasn’t been increased in years and the result is that any extensions to free childcare and subsidies are being eroded by inflation.

Harding says: ‘The maximum amount parents on benefits can claim to help with their childcare costs has not gone up for over ten years.

‘Childcare costs have risen significantly during this time, and today in 96 per cent of local authorities Universal Credit won’t cover the cost of a full time nursery place.’

She adds: ‘This causes real problems for parents – they have no choice but to work part time, unable to increase their working hours even when this would be the best thing for them and their family.

‘This keeps families in poverty and means many parents are stuck working below their skill level because there aren’t enough high quality part time jobs.’

Over the last year childcare costs have risen by five per cent for children under two and four per cent for children aged two.

Empty election promises

The report acknowledges that parents can get some support through subsidies and free entitlements (see childcare support table above) but points out that the system is too complicated with seven different ways families can obtain support in England alone – each with different eligibility criteria.

O’Connor adds: ‘The cost of childcare can plunge anyone on modest earnings straight into debt and seriously erode a family’s quality of life during the early years of a child’s life.

‘Parents can’t afford childcare easily, but can’t afford not to use it either, as that means one parent giving up work, which can mean an unmanageable reduction in household income.’

New research by loan price comparison site FairMoney shows that the burden of childcare costs is especially hard on single parents.

After interviewing 2,103 respondents it found that 34 per cent of single parents agree that they would be better off on benefits that in employment. 

What’s more, 21 per cent of parents feel they have failed their child or children due to their financial constraints. 

Will it be enough?

In last year’s election, the Conservatives pledged to create a £1billion fund to ‘help create more high quality affordable childcare including before and after school during the holidays’.

Parents have yet to hear how and when this fund will be set up and it was expected that the Budget would provide the Chancellor with the opportunity to expand on this. 

But this has been thwarted, thanks in part by the coronavirus crisis which much of the Budget was focused around.

An increase of 30 hours funded care being extended from 38 weeks to 48 weeks for ages three and four was also mooted but not detailed in the Conservative manifesto.

O’Connor says the extension of the 30 hours funding weeks would save parents £1,410 between ages of three and four and a half.

‘If they increase the weeks the annual cost of childcare would go down. It’s not the most helpful thing they could do.

‘The more helpful area would be parental leave and when funded hours start.

‘If you brought it forward that would by far provide more help to working parents.’

FairMoney points out that even though working parents have been entitled to 30 hours free childcare a week – up from 15 hours) there have been fears that to remain sustainable , nurseries have had to increase prices.

This has squeezed parents financially, particularly single parents on a low income.

Research by the loan price comparison site revealed that 34 per cent of single parents feel they are better off on benefits than in employment. 

It also found that 21 per cent of single parents feel they have failed their children due to their financial constraints.

Dr Roger Gewolb, founder and executive chairman of FairMoney says: ‘The government has previously stated that by 2020/21, there will be £3.6billion of investment in childcare and early years education, with the hope to give families further flexibility.

‘However, with the amount of single parents in particular finding themselves to be bankrupted by childcare costs, perhaps we need to start questioning whether these pledges go far enough.

‘Our research has been particularly illuminating, shedding light onto a portion of the British family that doesn’t receive the attention it deserves.

‘With 1.7million single parent families in the UK, and a quarter of all children being raised in these families, these findings paint a fairly bleak picture.’

Coram and Family Childcare have said they want to see an overhaul of the financial support system.

Harding says: ‘Investing in childcare supports is good for us all because it helps parents to work now, and boosts children’s learning and skills for our future.

‘We’re calling on Government to reform and simplify the childcare system so every parent is better off working after paying for childcare, and every child has access to childcare which supports their learning and development.