From the minute that squirming bundle of joy is placed in parents’ arms life gets complicated and expensive.
How will you split paternity leave, will you both go back to work full time and is that even a possibility with childcare in the UK so expensive?
With the average cost of full-time nursery for a child under two coming in at an eyewatering £14,800 a year, according to a 2023 Coram Childcare report, it’s not hard to figure out why so many parents decide not to return to the workplace, or return part time, at least initially.
PUSHED OUT OF THE WORKPLACE BY NURSERY COSTS
Things might be changing but the burden of childcare still falls primarily on women and research carried out last autumn for an AJ Bell’s Money Matters campaign revealed that only 55% of women returned to work full-time after having their first child.
That number falls to just 30% when a second child is added to the mix.
Little wonder the government’s been so pre-occupied with finding the cash to fund “free” childcare over the past couple of years, with the deadline to apply for two-year-old funding fast approaching. (The deadline to apply for 15 free hours starting in April 2024 is 31 March 2024 – funding for nine-month-olds is due to commence in September 2024)
Looking at the latest data from the ONS almost 25% of those women currently considered ‘economically inactive’ stated the reason for not being in work or looking for a job was because they were ‘looking after family/home’.
That’s 1.3 million women potentially available to fill those 908,000 job vacancies currently adding to the UK productivity puzzle, though some will be playing taxi for older children who no longer qualify and some will have other caring responsibilities which prevent them from entering the labour force.
FREE HOURS ARE NOT A PANACEA
And the ‘free’ hours do have limitations and conditions. First, you only get the 15 hours during term time which means for 14 weeks out of every year there’s a shortfall to make up and you need to apply for the hours and if you miss the window for the next term you will have to wait several months to qualify.
Second, nurseries have been crystal clear that the funding doesn’t cover all their costs, so parents are likely to find they have additional costs to pay for things like meals, nappies and sun cream. (Though remember you can make your money stretch further by using a tax-free childcare account).
And third you need to make sure you are eligible with parents expected to work at least 16 hours a week at minimum wage but earning less than £100,000 a year.
It’s complicated, there are concerns that many people will struggle to find nursery places and with the full 30 hours not due to come in until September 2025 there will be some families who find even this enhanced provision isn’t enough to make the sums add up.
OTHER BOOSTS FOR WORKING FAMILIES
If you’re feeling a bit hard done by because your kids are now too old to qualify for those free childcare hours keep reading because there were other measures delivered in the last budget which could provide a decent boost for your family.
While we’re all hyper aware of fiscal drag a second cut to employees national insurance will provide a welcome boost to April pay packets with an average earner saving an extra £450 a year and those earning £50,270 or more better off by £754.
Costs for council tax, broadband and a whole host of other household expenses are also rising in April so many people will find those extra pennies have already been spent.
But there was one other change that could make a huge difference to the future of your child or children and that was the increase in the previous £50,000 earnings limit at which you can no longer claim benefit in full to £60,000.
From 1 April many middle-income families will be able to claim child benefit in full and fewer parents will be caught out as the point you have to repay the full amount of benefit rises from £60,000 to £80,000.
The eventual plan is also to allocate child benefit by household to reduce the previous unfairness of the system for a single-income family.
The biggest winners will be households where each parent earns £60,000 because they’ll go from nothing to being able to claim the whole shebang, money they’ve either not been claiming or have been having to pay back.
TURN CHILD BENEFIT WINDFALL INTO A £50,000 NEST EGG
From April child benefit will be paid at £25.60 a week for the eldest child and £16.95 a week for subsequent children.
Cost of living pressures could easily see that extra cash subsumed into the household budget, but if you can make do without it that £25.60 a week could mushroom into a nearly £50,000 nest egg which would give your child an incredible start to their adult lives.
A Junior ISA is a tax-free savings account for under 18s where you can stash away up to £9,000 a year which could come in handy to cover a deposit on a first house or help cover those university tuition fees.
And even if you can’t add in anything above child benefit payments, if you invest the windfall every month for 18 years the magic of investing will turn that little acorn into a whopping £49,214.
Assuming the benefit rises 3% a year and you get investment returns of 5% if you have two children an investment of that unexpected benefit could cash out at £81,799, which you might want to split neatly into two just to be fair.
It’s important to note that with child benefit it won’t just automatically come your way if you’re not currently claiming it and it will require you to fill out some forms, something which has put many parents off claiming in the past even if they might have been entitled to at least a portion of it.
DISCLAIMER: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Danni Hewson) and the editor of the article (Tom Sieber) own shares in AJ Bell.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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