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Three and a half ways being a parent on a low income will keep getting tougher

August 12, 2014

New report: the cost of a child in 2014

Ten years ago, families with children were clearly the favoured group in government efforts to tackle poverty. A new tax credit system was giving much more help to low income families both in and out of work; support for childcare was being made more generous than ever before. Poverty remained higher for children than other groups, but the gap was closing.

This situation has now reversed decisively. Real cuts in child benefit, tax credits and childcare support have turned low income families with children from the biggest winners to the biggest losers from public policy. Our third annual report on the cost of a child is tracking what this means for families. For example, basic safety-net benefits paid because you have a child are falling steadily relative to what children actually cost, leaving a 27% shortfall for children of lone parents and 15% for children of couples.

Sadly, even a healthy economic recovery is unlikely to make low income families start feeling better off. Here are some important reasons.

First, because we know that the support from government on which these families depend (including those working on low incomes) will not keep up with rising prices. The one per cent annual increase in benefits and tax credits is likely to continue for the indefinite future, given the government’s determination to cut the benefits bill. Prices are likely to rise much faster. This is a long way from the 2000s when tax credits were going up systematically faster than prices.

Second, because the amount you can earn before having tax credits reduced has been frozen. This means that even pay rises that only cover the cost of rising prices will be clawed back through tax credit reductions. This will make many people worse off overall even if their real wages are rising. Like all the cuts, this applies to the new Universal Credit as well as to the tax credit regime.

Third, because the whole system that helps families afford to live in an appropriate size home despite the high cost of housing is breaking down. Social rents have rocketed. This means that even if a low income family is lucky enough to get social housing as a result of having children, the additional housing costs associated with parenthood are rising steeply. Meanwhile the housing benefit system is doing everything possible to ensure that families do not get fully supported, whether by restricting eligible rents in the private sector or having steep penalties for “under-occupying” a social property under the “bedroom tax” which makes that whole sector less attractive. Increasingly as time goes on, families will be subject to the free-for-all of an expensive housing market, and hence often the choice between inadequate housing and inadequate post-housing income.

Finally, the future of childcare costs faced by families is uncertain. They are already sky-high, but a slight pause in their increase this year raises the issue of whether they will continue to grow. More importantly for those on tax credits or Universal Credit, a more generous system paying 85% of childcare rather than 70% to eligible families is on the way. Unfortunately this really good news is compromised by the fact that the limits on the weekly fees eligible for this treatment have not been raised since 2005, and will soon be lower than the average full-time childcare fees outside London, let alone London costs. It would not cost much for the government to raise these limits. But it would mean a lot to a family with the opportunity to make the raising of children more affordable by working full time. If support for childcare remains capped at its present level, full-time work could instead leave such a family worse off than working part time.

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