How childcare costs really affect UK families

Childcare is a necessity for many working parents in the UK, either full or part time. Grandparents and relatives often help where they can, but it’s becoming more common for babies, toddlers and children to spend time in nurseries and day care centres so parents can get back to earning.

Recent research revealed that UK parents spend an average of £73,118 on childcare costs during the first 12 years of their youngsters’ lives. This figure refers exclusively to childcare and doesn’t include other notable expenses, such as food, clothes, toys and family activities.

Government schemes such as the old childcare vouchers and the incoming Tax-Free Childcare schemes are attempting to bridge the growing gap between income and household and childcare costs1 according to recent reports from The Telegraph, but parents are still finding it difficult to manage their finances and the costs of childcare.

Trends over time followed the expected path, with care for children under two years old costing the most. As they grow older and start going to school, the costs decrease. Usually, it’s only necessary to arrange care for a couple of hours either side of the school day until parents finish work.

Costs Overview

The full and part time annual figures, and the total cost of childcare per child from 0-12 years in this infographic have been calculated from estimates from the Money Advice Service. Figures around average spend on childcare per week were indicated by respondents to Juo Loans’ Childcare Survey.

How are families coping with these costs? Will the new Tax-Free Childcare government scheme help to ease the burden? Juo Loans asked parents to share their view.

Childcare costs in context

Childcare Cost
Source: Office for National Statistics2

The average annual cost of full-time care for a child under two years old is the biggest expense for many UK families when compared to other essential outgoings. According to the Office for National Statistics, childcare far outweighs the cost of travel, food and domestic bills.

Perhaps the most staggering revelation is that full-time care for children under two years old can be the equivalent of another mortgage. In fact, it can be greater, costing an extra £500 per year when compared to the average UK mortgage.

Top 5 financial sacrifices

Financial Sacrifice
Source: Office for National Statistics3

Nearly half of parents make lifestyle and consumer sacrifices to counter childcare costs. The most commonly reported cutbacks were buying only essential clothing (60%), staying in the UK instead of going abroad (48%) and changing supermarket (40%).

Modern shifts in the UK consumer market seem to support these results. With less money to foot the growing costs of basic expenses like food and clothing, it makes sense that upscale shops and supermarkets are ditched in favour of budget options. In September 2017, Sky News reported that own-brand goods were selling at five times the rate of pricier branded options4. For financially squeezed parents, these cheaper prices are an easy way to save vital funds for childcare.

Summer holidays are also suffering, with almost half of interviewed parents saying they now stay in the UK instead of going abroad. At a time when so many have to sacrifice their overseas trips, we’re making a conscious effort to put a positive spin on our domestic adventures, rebranding them ‘staycations’.

The impact on savings

Office of National Statistics figures show savings are falling5, and it’s a nation-wide problem. With childcare costs claiming such a large chunk of parents’ annual wage, it seems logical to suggest that their savings accounts will be suffering. Our research strongly supports that claim, with almost one in five (18.5%) reporting they don’t have any savings at all.

Childcare vouchers v Tax-Free Childcare

To help relieve the financial pressures of parenthood, the UK Government subsidises childcare costs. This system is currently changing from childcare vouchers to a new Tax-Free Childcare scheme, but we found that more than one in three parents (37%) don’t know what the scheme means for them. So what’s the difference between them and how do they affect UK parents?

Childcare vouchers

This Government scheme gives parents the chance to receive a set chunk of their salary on a weekly basis in the form of childcare vouchers6. These vouchers are tax-free and they’re exempt from National Insurance too. Parents can claim up to £55 per week in childcare vouchers, which totals approximately £2,860 in tax-free funds per year. This scheme will be closed to new applicants by 5 October 2018. Parents can use childcare vouchers up until their child is 15 - or 16 years old if they have a disability7.

Tax-Free Childcare

Under the new Tax-Free Childcare scheme8, working parents can claim up to £2,000 per year from the government to contribute to childcare costs. To receive the money, parents must pay for childcare via an online account. For every 80p they deposit, the government will automatically add an additional 20p. Under the new scheme, both parents must be working to qualify. You can’t use Tax-Free Childcare at the same time as childcare vouchers, Universal Credit, or tax credits9. It will be available for children up to the age of 12 - or 17 years old if they have a disability10.

In our recent survey, Juo Loans found that one in three parents considered the old childcare vouchers scheme ‘quite financially beneficial’. With the new Tax-Free Childcare scheme being rolled out permanently from October, skies are not looking quite so blue for affected parents. A considerable 37% said the new policy would not affect their finances at all.

ChildCare Vouchers

Loans for UK parents

Despite government assistance and concerted efforts by parents to cut back on other expenses, the financial squeeze caused by childcare costs results in many UK parents taking out loans to cover essentials. In our study, 41% of parents said they have had to take out a loan to cover essential costs while one in five (19%) said they have to borrow funds more than once a year to keep up with the financial demands of having a child.

“With the Office for National statistics reporting the monthly cost for full time childcare in the UK can be more than the cost of a mortgage, it’s not surprising many parents find themselves financially squeezed at times when they need to cover these costs. Our research has shown that families in the UK have had to cut back or make adjustments to their spending on clothes and supermarket shopping, amongst other things, to cover these substantial – yet unavoidable – outgoings for childcare. Almost half of the respondents to our survey said that they have had to take out a loan at some point to cover essential costs.” – Gill Smith, Head of Customer Experience at Juo Loans.

Juo Loans provide Personal and Guarantor loans between £1,000 to £3,000, over 1 to 3 years. Applicants are considered even if they’ve had credit problems in the past. Visit the Juo Loans homepage to find out more.

References

  1. https://www.telegraph.co.uk/property/house-prices/high-cost-living-sluggish-wage-growth-continues-drag-housing/
  2. https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/bulletins/familyspendingintheuk/financialyearending2017
  3. https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/bulletins/familyspendingintheuk/financialyearending2017
  4. https://news.sky.com/story/grocery-shoppers-turn-to-own-brand-products-to-combat-rising-prices-11042888
  5. https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/bulletins/quarterlysectoraccounts/octobertodecember2017#households-saving-ratio-fell-to-a-record-low-of-49-in-2017
  6. https://www.gov.uk/help-with-childcare-costs/childcare-vouchers
  7. https://www.moneyadviceservice.org.uk/en/articles/help-with-childcare-costs#childcare-vouchers
  8. https://www.gov.uk/help-with-childcare-costs/tax-free-childcare
  9. https://www.moneyadviceservice.org.uk/en/articles/help-with-childcare-costs#tax-free-childcare
  10. http://www.tax-free-childcare.info/resources/childcare-vouchers-vs-tax-free-childcare/