Budget Reforms...

Much has been made of the Chancellor's recent childcare reforms in the Budget. The headlines read "£200m for low-income families" , the main message being that working families are to benefit from reforms which will see tax relief meet at least 85% of their childcare bills.

With 20% tax relief on the first £6, 000 of childcare costs for each child, this could initially be seen as a triumph for working families and support for mothers to return to work. However, the Resolution Foundation think-tank has analysed how this will play out in practice, and it seems that Osborne's generosity is to be directed more at those in the  'squeezed' middle rather than the truly low-paid families who are most in need.

The new Universal Credit system to be rolled out nationwide from October 2013 is the new regime for those looking for work or on a low income - it heralds the gradual phasing-out of the existing benefits system, with the aim of making claimants and their families more independent. Various working -age benefits will be streamlined into one single payment,  and most claimants will manage their claims and accounts online.

A minority of working families claiming Universal Credit will actually be eligible for the new 85% rate of childcare support - whilst 564, 000 families will benefit from the 85% rate of childcare costs, it transpires that 900, 000 families will remain at the current rate of 70% for childcare costs. This occurs when one or both partners does not earn enough to pay income tax. Part-time workers will similarly miss out.

The Government is clearly trying to help families struggling with their childcare bills, but it does appear to be unfair that less than a third of families with children under five within Universal Credit will actually feel any benefit from these measures - even more so as families with a combined income of up to £300,000 will qualify for some childcare vouchers under this new legislation.

The Resolution Foundation believes that the proposed Budget changes will cause a 2-tier system to develop within the Universal Credit spectrum and this view would seem to be a realistic one. George Osborne's Budget, whilst appearing to be providing encouragement and assistance to working families, is in reality leaving a considerable tranche of families on low pay without any further help into the workplace.