Benefits could help families save up to £12,000 per year but 80% are not taking advantage

It is not easy to be a working mom! Young beautiful businesswoman talking on mobile phone and looking at laptop while standing with her baby girl at her working place

The UK Government has been working on developing and adapting their child care assistance schemes such as the 30 hours free childcare scheme for 3-4 year olds, Tax-Free Childcare and Universal Credit, but estimates show that each year some billions of pounds of these means-tested benefits go unclaimed.

Yoopies’ 2019 annual study on the cost of childcare analyses the most up-to-date information to find out whether our benefits system is helping the British families who truly need it, and why so many benefits are not being claimed.

The main summary of the findings were as follows:

  • Without benefits[1], lower income households might expect to spend between half to two-thirds of their post-tax income on full-time childcare for a preschool-aged child.
  • Benefits could help to reduce the cost of childcare for families working full-time with by between 20%[2] and 96%[3]
  • For most types of households, reducing the number of hours worked in order to avoid formal childcare costs would not result in families faring better off financially
  • Around 80% of families are reportedly not using any form of external financial assistance towards their childcare[4], due to the stigma attached to claiming benefits, the claiming process being complicated and simply the lack of awareness of the help available

How much can families save on average thanks to benefits?

According to our estimations, we found that families could save up to 96% on their childcare costs thanks to the various benefits available, including the 30 hours free childcare scheme, Tax-free Childcare, Child Benefit and other elements of Universal Credit. This depended on many factors including how many hours of childcare were needed and the family’s financial situation, but it was estimated that yearly full time childcare costs for a 3 year old could amount to £18,264 per year, which would be almost two thirds of the average single parent’s salary in London. Families with a lower household revenue, whether this was due to being a single parent family or due to earning lower wages, could generally benefit from further help towards their childcare costs; up to 82% for a preschool aged child or up to 96% for a school aged child.

However, despite the various benefits schemes helping to save up to £15,000 per year on childcare costs, most families working full time might still need to spend several thousands of pounds per year to make up for extra childcare hours. This can amount up to 15% of the household income of a minimum wage family, which raises some questions about whether the number of hours being covered is sufficient.

Is it a financially feasible strategy to cut working hours to avoid childcare costs?

Many families have considered or are choosing to work part-time so that they don’t need to pay for formal childcare; with around a third of mothers working part time stating that they would like to increase their hours if they could[5]. In conjunction with the 30 hours free childcare scheme, working part-time can seem like a feasible idea, especially as purposefully reducing the household’s income can increase a family’s eligibility for claiming certain means-tested benefits. However, from our analysis, the loss in income by adjusting one parent’s working hours was not made up by the increase in benefits that were able to be claimed, nor by the cost savings of avoiding formal childcare for most family types, apart from families earning the minimum wage outside of London.

What are the reasons for Britons not claiming benefits?

A recent study showed that nearly one in four Britons delayed or refused to claim benefits due to the level of stigma attached to doing so[6] and that only 21% of families using formal childcare reported using external financial assistance to help fund the costs[7]. Francesca Chong, Manager of Yoopies UK comments, “In light of these revealing statistics, it’s easy to understand why claiming benefits might be considered as necessary for some families. The current culture of benefits-shaming needs to be addressed both through Government actions and at the community level, and parents should never feel ashamed to claim the help that they’re eligible for.”

Another reason why many benefits go unclaimed is because the system is largely difficult to understand and time-consuming. We are experiencing a situation where families are unaware of what they are entitled to, as a recent survey of Yoopies users reveals that more than one third of parents were not aware of the Tax-free Childcare scheme, for example. However, Yoopies is dedicated to demystifying the various sources of information that is out there to make it easier for parents to understand how they can improve their financial situation, as well as working alongside HMRC to help to integrate Tax-Free Childcare and other childcare benefit schemes into their innovative online platform. When this partnership is rolled out, parents on Yoopies would be able to instantly apply their Tax-Free Childcare allowances as discounts on their childminder payments through the platform.

To see the full detailed analysis, including the underlying assumptions and exact figures used, please visit: https://yoopies.co.uk/c/childcare-benefits-analysis-sept-19.

 [1] This includes: assistance from 15/30 hours childcare scheme, Tax-free childcare, Child Benefit and/or the childcare elements of Universal Credit that the family would be eligible for

[2] A two-parent household earning the median salary in London requiring care for a child of school age, Yoopies analysis

[3] A two-parent household earning the National Minimum Wage in Manchester requiring care for a child of school age, Yoopies analysis

[4] 2018 Childcare and Early Years Survey (Department for Education UK)

[5] 2018 Childcare and Early Years Survey (Department for Education UK)

[6] 2012 Benefits Stigma in Britain report (Turn2Us)

[7] 2018 Childcare and Early Years Survey (Department for Education UK)

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