August 4, 2011 10:38 pm

Benefit reforms hit childcare support cash

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Ministers are locked in tense negotiations about the future of childcare benefits after the department for work and pensions calculated its plans for a universal system could leave a quarter of a million families worse off.

Iain Duncan Smith, the work and pensions secretary, plans to put existing childcare benefits under a single benefit system called the universal credit and open it up to parents who work fewer than 16 hours a week, the current cut-off point. But this would mean the £2bn pot of money set aside for childcare support being spread among hundred of thousands more families, leaving those that currently claim with a smaller share.

Mr Duncan Smith and George Osborne, the chancellor, are thrashing out various options for how to restructure the system.

Mr Duncan Smith has refused campaigners’ calls to request an additional pot of Treasury money, leaving it likely that those families who currently claim childcare support will get less money in the future.

A spokesman for the DWP said: “We have already said that under universal credit we will invest at least the same amount of money into childcare as in the current system, and we are working closely with the Treasury and interest groups to agree the details of the childcare policy.”

But Treasury officials have told the Financial Times that they do not expect to grant an increase. One said: “We currently spend £2bn on childcare benefits. We would expect to spend a similar amount in the future.”

DWP officials have drawn up two alternative ways of spreading the money more widely, both of which rely on a lower maximum amount that can be claimed, which would hit those in London and other cities in particular.

One option is to allow parents to claim 70 per cent of a maximum of £210. This would leave an estimated 280,000 people worse off, on average by £30 a week. The other is to allow them to claim 80 per cent of a maximum of £150, which would hit 250,000 people by an average of £35.

Ian Mulheirn of the Social Market Foundation think-tank said: “Either option will take a large chunk out of working families’ disposable incomes, damaging work incentives.”

The only alternative left is to make money available from other parts of the DWP budget, something officials are not ruling out, although it is not clear where these extra savings could come from.

Mr Mulheirn added: “Without extra money from the Treasury, giving childcare support to short-hours working parents will probably mean taking money from other parents who currently get financial help.”

Campaign groups will continue to lobby for ways to compensate those who will lose out, at least in the short term. Fiona Weir, the chief executive of Gingerbread, which campaigns for single parents, said: “Without significant extra funding for childcare support, the government will fail its own commitment that work will always pay under the universal credit.”

They warn that government cuts are already discouraging parents from going back to work after Mr Osborne cut the proportion of childcare costs the government would fund from 80 per cent to 70 per cent, leaving some parents £30 a week worse off.

The issue will have to be resolved by October, when DWP clarifies its proposals in the House of Lords.

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