New mothers are having to pay to return to work due to a “nightmare” childcare system that means it can end up being cheaper to stay at home, a think tank has warned.
Parents are disincentivised from finding jobs or taking on more hours by the cost of childcare, loss of benefits, delays in support and the expense of income tax, according to a new report.
It estimated tens of thousands of new parents would be financially worse off going back to work in the current system.
Low-paid mothers with a working partner are particularly affected, according to the Institute for Public Policy Research (IPPR).
“The current childcare system has now created an environment which disincentivises parents from work,” Henry Parkes, a senior economist from the think tank and co-author, said.
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“In the midst of a cost of living crisis, it is nonsensical and impractical to have families who are worse off in employment.”
He added: “You should not be worse off from working more. The system needs change.”
The IPPR highlighted a number of issues that could disincentivise new parents from work in its new report on childcare in England.
This included high upfront costs for those on Universal Credit, which they must pay before being able to partially claim them back.
Some parents face losing money by going back to work over the cost of childcare, losses in benefits and income tax , which can contribute to “staggeringly high” effective marginal tax rates of up to 130 per cent, the report said.
Trade offs between paid work and caring for children were “often sharpest for low-paid mothers” with a partner in work, as there may be “very little financial benefit from entering work“ due to the cost of childcare and smaller Universal Credit payments as income increases, according to the researchers.
They spoke to parents who felt “low-paid, part-time work was often not worth the disruption” for young children and their routines, according to the report.
Rachel Statham, its lead author, said: “As the cost of living crisis pushes more families into financial stress, rising childcare costs are increasingly unaffordable – and risk pushing parents of young children out of the workforce altogether.”
She added: “We urgently need reform to simplify and expand childcare provision.”
Purnima Tanuku OBE, from the National Day Nurseries Association, said: “It’s a tragic state of affairs but we agree with the IPPR’s analysis of this country’s childcare system which does not work for either parents or providers.”
She added: “Nurseries try to keep their costs to parents down and so absorb some of the shortfall themselves – but cannot go on doing so as they face ever increasing costs on food, energy, staffing and resources.
“The government must act urgently to protect an essential sector for children’s futures and the wider economy.”
The chief economist for the Social Market Foundation, another think tank, said it had previously found low-income families were “paying far more of their money for less support” with childcare, with the burden falling “largely on women and their careers”.