Childcare costs hit middle-income families

The analysis, an update on last year’s research carried out by the Resolution Foundation on the cost of childcare for low and middle-income families, shows that the picture is even bleaker after taking into account housing costs.

While middle-income families start off 79 per cent better off than low-income families, after housing and childcare costs they only have £1,700 extra in disposable income a year, the equivalent of £38 a week. For middle-income families in London, compiled in a separate analysis, this falls to £1,569 better off a year, or £30 a week than low-income families.

The reason given for the small difference in middle and low-income families' disposable income is that middle-income families receive less support towards living costs than a low-income family.

A low-income family is referred to as two parents working full-time on the minimum wage. A middle-income family has a gross income of £43,400. The main earner is assumed to earn 50 per cent more than the second earner. Both households have two children under five in full-time daycare, 42.5 hours a week.

The research shows that a low-income household outside of London with a gross income of £24,207, which increases to £36,131 after taxes, tax credits and benefits, is left with £17,543 after childcare and housing costs. A middle-income household with a gross income of £43,400 and net income of £41,856 is left with £19,243 after childcare and housing costs.

The cost of childcare is assumed equal to the national average of £3.95 per hour, based on Daycare Trust figures for 2012.

Middle income households are presumed to have an estimated average annual housing expenditure of £9,084, while low-income families are estimated to be paying £5,059.

For families living in London, the cost of housing is considerably more, with middle-income families with a net income of £47,993, paying around £13,331 a year and low-income families with a net income of £40,517, paying £7,424 per annum.

The analysis also shows the take-up of childcare vouchers according to household. It reveals that in 2010-11, nearly 50 per cent of households receiving vouchers were among the richest 20 per cent of working age households.