Without childcare support, low-paid workers will lose out under Universal Credit

The decision to only provide help with childcare costs to those paying income tax means work will not pay for 900,000 families.

As the first pathfinder for the new Universal Credit system began in April, David Cameron tweeted: "Another major step forward on welfare reform today with the introduction of Universal Credit – this Govt is determined to make work pay".

But this goal risks being undermined by the high cost of childcare in the UK. For some families this is the difference between work paying and paying to work. New research published by the Joseph Rowntree Foundation shows that when the cost of childcare is factored in, for some parents in low-paid jobs it no longer pays to work full-time, while for others the incentive to work more hours is blunted significantly.

Take for example a couple with two young children, where the father is already working full-time on the minimum wage. If the mother takes up a minimum wage job of one and a half days a week, the family would be £23 a week better off. If she increased her hours to three days a week, they would only be £8 a week better off than when worked half the hours. And if she worked full-time the family would actually be worse off than when she worked fewer hours. In this scenario, the family’s disposable income does not increase significantly for three reasons.

First, the amount of Universal Credit received by the family is sharply withdrawn as the mothers earnings increase; second, by working more than 30 hours she is brought into income tax; and third, the more hours she works the more childcare the family needs. The cost of childcare has risen at twice the rate of inflation over the last five years, while at the same time the help with childcare costs offered to low income working families through the welfare system has been sharply reduced by this government.

But there is some relief on the horizon. In the 2013 Budget, the government announced something of a reversal, proposing to provide more help with childcare costs to working families receiving Universal Credit. But – and it’s a big but – to be eligible all adults in the household would have to be paying income tax. This would exclude those households where someone is working part-time earning the minimum wage. Looking at the working patterns of low income households at present, this policy would deliver a welcome boost to some 600,000 working families on low incomes – but 900,000 in low paid work would miss out.

The government has said it will publish a consultation on its childcare plans before parliament breaks up for its summer recess (next week). To ensure Universal Credit delivers on its goal of making sure it always pays to work, the policy needs to include something for those families that are working hard and 'doing the right thing' but not yet earning enough to pay tax. Otherwise a large number of families will remain trapped in a situation where it barely pays to work.

Katie Schmuecker is policy and research manager at the Joseph Rowntree Foundation

David Cameron during a visit to a London Early Years Foundation nursery on January 11, 2010 in London. Photograph: Getty Images.
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Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.