Is the middle class overlooked?
The pressures on Britain's middle-class families are immense and are pushing many to financial breaking point. Moneywise believes more needs to be done to help ease the squeeze on this vast group, on which the country depends for much of its economic growth, taxes and bringing up the next generation of taxpayers.
In the first part of our series on Defending the British Family, we examine how families are coping with the challenge of the childcare conundrum - as costs escalate and state help declines - and outline what help the government, employers and financial instutions should be offering.
Recent research from ING Direct found that middle income families are among the hardest hit by the crisis because they spend more of their family income on energy, petrol and food, where prices have risen even faster than for other goods and services.
Middle-class families are often neglected as it is assumed their income levels mean they can easily look after themselves. Many qualify for some state help through tax credits but even these face erosion. It was announced in the Autumn Statement that elements will be frozen and the planned increase to the child tax credit has been withdrawn.
The childcare element of working tax credit has already been cut to cover only 70% rather than 80% of childcare bills, and there are fears that middle-income families will lose out further when the Universal Credit arrives in 2013.
The charity Working Families says: "We are anxious that the government carefully considers its Universal Credit plans, to ensure they don't dissuade second earners in households, often a woman, working part-time, from carrying on working."
A SHORT-SIGHTED POLICY
Certainly, cutting back childcare support is likely to be short-sighted, as Gavin Kelly, chief executive of think tank Resolution Foundation, which lobbies to improve the lot of low to middle-income families, suggested in November.
He said: "Taking cash away from families on low to middle incomes is precisely the wrong thing to be doing – it hits households when they are down. Every pound taken out of their pockets is also likely to be a pound taken out of consumption in the economy."
This is why Moneywise believes the government, employers, mortgage lenders and utility providers should do more to help keep the squeezed middle's heads above water. The government should boost help with childcare – not reduce it. And to foot the bill it should think big and imaginatively. What about a new tax, such as one on landowners, which has been mooted by some commentators?
Middle-income individuals would end up paying something but those with the deepest pockets would fork out the most. It's madness that even families with two decent incomes are struggling to make ends meet due to rocketing childcare bills. A family of five, with a joint income of £60,000, can receive up to £1,835 a year towards the costs, for example.
Although seemingly generous, that amount is a drop in the ocean. UK childcare bills are the most expensive in the world, according to the Organisation for Economic Co-operation and Development, gobbling up 28% of the average income of a two-income family.
THE GOVERNMENT RESPONSE
A spokesperson for Sarah Teather, the minister of state for children and families, pointed to the universal benefit of 15 hours of free nursery education for 38 weeks of the year for all three and four-year-olds, no matter the level of family income, plus the recent announcement of the extension of the benefit to twoyear- olds for lower income families. But middle-income parents miss out on the latter and those who require childcare for longer periods in a day must still spend a fortune.
The costs range from a tantrum-inducing £34,000 for a live-out nanny in London (about £24,000 in in other parts of the UK), according to Nannytax, to £5,000 a year for 25 hours a week for one child under the age of two in a nursery, according to Daycare Trust. These bills are squeezing family budgets to such a degree that they have forced a quarter of parents into debt, according to a survey by Daycare Trust and Save the Children published in September 2011.
While low bank interest rates mean lots of families have enjoyed lower mortgage costs over the past few years, others have missed out because they have been stuck in higher-rate fixed-rate loans.
Moneywise believes lenders should give these families the option to switch to a better deal without serious penalties. corporate britain could help too.
Soaring energy bills are also crippling the family budget. British Gas put up its gas and electricity prices by 18% and 16% in the summer, pushing up the average annual dual-fuel bill to £1,288. Many families could benefit by switching supplier, but are often confused by the maze of tariffs on offer.
Moneywise backs the government’s campaign to force energy suppliers to simplify tariffs so that customers can more easily compare and switch deals; this might encourage more competition too.
And employers must do more too. A good start would be to agree to flexible working arrangements for staff with young children (if you’ve been with your employer for at least 26 weeks you have a statutory right to request this).
However, Jonathan Swan, research officer at charity Working Families, warns that working flexibly can affect career progression. “Research shows that many women take a role below their skill level just to ensure they can work flexibly.” All these steps taken together could easily save the beleaguered British family.
DEFENDING THE BRITISH FAMILY MANIFESTO
Escalating childcare costs – what needs to be done:
- The government should boost help with childcare, not reduce it. It’s a false economy to slash benefi ts, which will lessen consumer spending
- Mortgage lenders should consider giving these families the option to switch to a better deal without serious cash penalties
- Energy companies should simplify their tariffs so that customers can more easily compare and switch deals
- Employers should do more to help workers who’d like a flexible arrangement
Child tax credit
A scheme started in 2003 that sought to replace a raft of other tax credits and benefits, the payout depends on the number of dependant children in a family, and its level of income. The amount of credit is reduced as income increases. It is payable to the main carer of a child, usually the mother, and is available whether or not the recipient is working.