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London parents risk little or no gain from working more hours

London childcare costs leave many parents on the minimum wage little or no better off for working more, a new report warns. 

The report - Children in London – The extra cost, by Loughborough University’s Donald Hirsch for Child Poverty Action Group and Trust for London - finds most of the costs children bring are similar in and outside London (1), but the capital’s housing and childcare costs associated with kids are dramatically different from the rest of the UK. 

While many London parents think it’s essential to work full-time to make ends meet, high childcare costs can mean they are not better off if they do – especially when children are young.

The report finds a parent with one child working on the minimum wage in London would be around £4 a week worse off if they increased their working hours from 32 to 33 hours because of high childcare costs. Outside of London, a parent in the same situation would gain 62 pence currently or £1.16 under Universal Credit from April 2016.

Childcare can cost 50% more in London than elsewhere in the UK and full time care (30-plus hours) for kids in the capital exceeds the cap on the help available with the costs.

And with the cap on help with costs unchanged for a decade (3) - and at a level well short of actual costs - the extra net cost of childcare for London families currently claiming tax credits  is up to double the cost outside the capital, the report says. 

Children in London – The extra cost uncovers the add-on costs that children bring in London.  The report finds:

Housing:

  • Whilst families in all tenures face higher costs in London, the difference is most acute in the private rented sector.

  • In London the extra housing costs kids bring for families in the private sector dwarfs the other additional costs of having kids: the arrival of a first child typically adds £50 a week in private sector rent for a couple in outer London renting in the private sector, rising to £150 for a single parent in Inner London. But outside London the difference would be only about £20 more for the private sector home.

  • While in principle housing costs trigger entitlement to housing benefit for low income families, in practice the benefit cap and bedroom tax and the freeze in the Local Housing Allowance are hitting London families harder than households outside the capital; a significant number of families are having to find money for rent from their non-housing benefit income as a result of the changes.

  • The lower benefit cap of £23,000 will force almost all out-of-work London families renting  privately and some large families  in social housing to use  part of their non-housing benefit towards paying the rent, leaving them  with worryingly low amounts for other basic needs. For example, a lone parent with two children renting in the private sector in inner London is likely to receive £160 less in housing benefit than she would need to pay her rent in full.  In Outer London the equivalent shortfall is £44 a week.

  • Even keeping to the occupancy rules, families claiming housing benefit (HB) are unlikely to find a property within the “reference rent level” that limits HB eligibility – originally set at the cheapest 30% of accommodation but falling in real terms. In the past two years, reference rent levels have been restricted to 1% per year but average London rents have risen by a total of 6%. Applied to a private rent for a two-bedroom home supported by housing benefit, this creates a loss of £15 in Inner London and £11 in Outer London.

Chief Executive of Child Poverty Action Group Alison Garnham said:

“Our research shows it is an uphill struggle for London parents on a low wage to improve their family income. They’re up against sky-high housing costs but if they work more hours to pay the rent they’re often no better off because they’re clobbered by childcare costs. Parents in the capital want to build a life with prospects for their kids.   

“As a would-be champion of working families the Government should not be allowing childcare costs to hold them back. It must commit to providing free childcare for pre-school children for every family that needs it.”

Author of the report Donald Hirsch, Director of the University’s Centre for Research in Social Policy (CRSP) said:

“This report makes it clear that for life to be affordable to Londoners on modest incomes, they need a lot of help paying for expensive housing and childcare. Some measures being taken by the government will help: Universal Credit potentially extends housing support to more families and increases the rate at which childcare fees can be reimbursed.

“However, at the same time, a range of other cuts in support will hit London families hardest, because they cap support both for working families with high childcare costs and for out-of-work families with high housing costs. To make work pay for London parents, and enable them to take advantage of better wages to cover more of their family costs themselves, the ten-year freeze on the cap in childcare support will need to be lifted.”

Mubin Haq, Director of Policy and Grants at Trust for London said:

“Surprisingly this new research shows that for some costs, particularly travel, it’s actually cheaper to bring up a child in London than outside of the capital. But these savings are dwarfed by the large sums families need to find to pay for childcare and housing, which are significantly higher here in the capital.

“Without intervention and support by Government, London will increasingly become a city where those on modest incomes will be unable to bring up a family. A two-pronged approach of increasing incomes and tackling costs, such as building more affordable housing, is desperately needed and must be a priority for Government and Mayoral candidates.”