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Wednesday, 3 August 2011

The Benefit Trap: Working Families Feel The Squeeze

Iain Duncan Smith's tax and benefits reforms are hitting the most vulnerable in society, say leading think tanks, and threaten to undermine any notion that work pays.

Low income families are becoming worse off and the prospect of work less attractive as government reforms of tax and benefits systems aimed at encouraging people back to work take effect.

The warning comes in the wake of a series of reports from respected think tanks that have analysed the impact of the reforms being led by work and pensions secretary Iain Duncan Smith.

Their findings reveal that an urgent rethink is needed, highlighting problems in the interaction of income tax and tax credits with other benefits.

‘Cuts to childcare tax credits could leave some parents losing 94p for every extra pound they earn,’ according to a report from the Resolution Foundation. It cites the example of a single mother on the minimum wage who would be just £3 a week better off if she decided to work four days a week rather than three.

Lone parents, 92% of whom are women, are worst hit by cuts, losing 8.5% of their annual income by 2015, according to The Fawcett Society. Its analysis was based on research undertaken by the highly regarded Institute for Fiscal Studies using the government's own models.

‘The government talks a lot about promoting responsibility and backing aspiration, but on the ground these cuts are actually stopping single parents from getting on,’ says Fiona Weir, chief executive of Gingerbread that represents lone parents.

‘It is unacceptable that single parents are bearing the brunt of cuts and this research proves again that the government must do more to support single parents, including further investment in childcare, training and employment support.’
Childcare costs

In the past, parents have been able to claim back up to 80% of childcare costs up to £300 a week, depending on income. For a family with two children or more this works out at a maximum of £240 a week. But since April the proportion these costs a parent can claim back has been reduced to 70 per cent and capped at £210 a week – a loss of £30 a week.

The Resolution Report calculates that almost 500,000 working families have lost an average of £426 a year in childcare benefit since April of this year, rising to an average of £600 a year in London, with some as much as £1,300 a year worse off.

According to the Daycare Trust’s 2011 annual survey of child care costs, the average yearly expenditure for 25 hours nursery care per week for a child under two is £5,028 in England, £5,178 in Scotland and £4,723 in Wales. This works out at around £96 a week on average.

But for parents working from 8.30am to 5.30pm childcare costs are nearly double at £172 a week, with some parents paying as much as £11 an hour for child care.

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