Child care blows a hole in middle classes' budgets

21 November 2012

Nurseries can be extremely expensive – a place for just one toddler can consume a third of a full-time wage.

If you can't afford to send your children to public school, how can you afford to send your infants to day nursery? The fees for many nurseries are now almost £15,000 a year, more than the cost of being a day pupil at a prestigious private school and almost on a par with boarding schools.

According to the Independent Schools Council (ISC), which represents most private schools in Britain, the average fee for a private day school is £11,000 a year, while a boarding school costs just over £26,000. Meanwhile, the most expensive London nursery costs £300 for 25 hours of care, or about £24,000 for a full-time place, according to the Daycare Trust, a child care charity.

What is more, the costs of child care are rising faster than school fees. School fees rose by 4.5pc last year, according to the ISC, while nursery fees for a child under two increased by 5.8pc, the Daycare Trust said.

But while paying for private school is a choice, many parents have little option but to pay for expensive child care. Without it, they cannot work, and many have mortgages that demand two incomes. The cost of basic necessities such as food and fuel is rising, and single wage earners struggle to cover day-to-day expenses.

Figures from the Daycare Trust show that 41pc of parents now pay as much for child care as they do for their mortgage or rent, and the high cost is putting people off work. According to a new study by the Resolution Foundation, child care costs for a two year-old would consume 31pc of the average full-time wage, and its high cost is locking women out of the workplace.

This situation is likely to get worse as higher earners lose their child benefit, which helps to meet the cost of looking after children.

"It's hardly worth a typical second earner going out to work more than a couple of days a week because the family will be barely better off as the extra money is swallowed up by the costs of child care," said Vidhya Alakeson, the deputy chief executive of Resolution. "We need major change in our child care system to ensure that work is always worthwhile – and that working more hours or a pay rise results in higher take-home pay."

Figures from Resolution show that the "squeezed middle" is seeing a disproportionate amount of their income swallowed up in child care. They reveal that a two-child family earning £44,440 before tax, and nominally £20,000 a year better off than a low-income family of the same size, sees this financial advantage almost wiped out by child care costs and lost tax credits. While both families will pay £13,529 a year for full-time care for two children, the lower-income family gets more than £11,000 in state support towards the bill.

So while the middle-earning couple's income is initially 87pc higher, they are only 17pc better off once taxes, benefits and child care costs are taken into account, and will have a disposable income of £27,000, compared with £23,000 for the lower-income family.

Britain has some of the world's most expensive child care. A couple earning twice the average wage with two children will spend 30pc of their disposable income on child care. The most recent OECD average for all countries was just 12pc.

So what could be done to reduce these high costs? Suggestions have included a "modest relaxation" in the legal ratios of staff to children in child care settings and reducing the red tape that has driven up costs.

Christian Guy, the managing director of the Centre for Social Justice think tank, said ministers must drive down child care costs so that more parents are better off if they take a job. "Reforming child care must be a political priority," he said.

"Helping parents to avoid the cost of child care altogether – for example, by fostering informal child care networks, encouraging child-minding circles and helping parents to work during school hours – would be hugely beneficial." He also called for a pruning of red tape covering the provision of child care.

The Government, it seems, is finally waking up to the issue and has come up with a variety of strategies to deal with the problem. The latest, launched this week, was the announcement by Nick Clegg, the Deputy Prime Minister, that the right to request flexible working – which has been available for parents for some time – is to be extended to all employees.

Mr Clegg believes that this will remove the stigma from flexible working, which allows people to work from home, or part time, and so reduce the cost of child care. However, staff have the right only to request, not to insist on, flexible working, and many companies turn down these requests.

The CBI, the employers' group, said flexible working "isn't practical for all firms". "Companies support the right of all staff to request flexible working, but they the companies must be able to decide each case on its merits," said Katja Hall, the CBI's chief policy director.

There are a number of things that parents facing high child care costs can do to ensure that they do not end up paying too much. These include taking advantage of government help with nursery costs once the child turns three, as well as using tax-efficient child care vouchers.

Part-time working and "salary sacrifice" schemes can also help to push earnings below the £50,000 threshold at which parents start to lose their child benefit.

Source: The Telegraph

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