'Toddler tax': are parents £1,700 worse off?

29 January 2013

Yesterday Stephen Twigg, Labour's Shadow Education Secretary and chair of the party's Childcare Commission, wrote a blog post for the Labour party news page laying bare a "£1,700 toddler tax that will hit working families with recently born children."

The 'toddler tax' is the name that has been given by Labour to the sum of additional expenses which will be incurred by new working parents starting from April this year, as a result of changes to tax and benefit entitlements introduced by the Government. 

Mr Twigg's blog post explains some of the details:

  • It will hit working parents. 
  • The burden will be shared over two years: £688 by April 2013, "with a further squeese of £1,041 the year after when their second child is born."
  • It is a result of "changes to tax credits, Statutory Maternity Pay, the Health in Pregnancy Grant and Child Benefit."

But where do these figures come from?

According to the Labour blog, the figures were estimated by the House of Commons Library, although the Library's research is currently unavailable on their website. However Labour were able to provide us copies of their findings, which we've uploaded as Excel spreadsheets here and here.  

The research - and the numbers generated from them - focuses on a specific scenario: that of a full-time-working couple with one child and a combined yearly income of £23,960, "where the mother becomes pregnant with a second child in 2013-14, gives birth at the beginning of 2014-15 and takes 39 weeks of maternity leave spread over the two years."

This is a fairly specific combination of circumstances, and we don't know how many people will fall into this category.

Taking the House of Commons Library research as it stands however, we can see that it took into account:

1. Child benefit cuts have affected households earning over £60,000 per year. Each family gets £20.30 in child benefits for their eldest or only child, and an additional £13.40 for each other child. This means families with two kids would get £33.70 per week, or £1,752.40 per year. For other households, child benefit was frozen from 2010-11 until 2013-14, and will be uprated at 1% every year after that.

This is as a result of the Welfare Benefits uprating bill, which we looked into a few weeks ago.  

2. We know from the Department for Work and Pension's Impact Assessment that on average around 340,000 women each year receive Maternity Allowance and Statutory Maternity Pay. Their uprating was also included in the House of Commons Library estimates, which also assume the working mother would take a 39 week maternity leave. The Sure Start Maternity Grant was restricted to the first child, so a couple with two children would lose out on £500 with the second child.  

3. With the Health in Pregnancy Grant mother could claim a one-off payment of £190 with every pregnancy. It was abolished in April 2011.

4. As announced at Budget 2011, in 2012-13 the income tax allowance for those aged under 65 increased by £630 to £8,105. 

5. Changes to tax credits, which came into effect in April 2012. 

All of this adds up to £1,764 worth of potential income that has been removed over two years. In fact, the note concludes that compared with the baseline (i.e. had the policies inherited from the Labour government been left unchanged until 2014-15), the couple in question are:

•£695 (2.8%) worse off in 2013-14 and

•£1,069 (3.5%) worse off in 2014-15.

These are slightly different figures from the once cited in the Labour website (respectively £688 for 2013, and £1,041 in 2014), which may be due to Labour using calendar years, rather than financial years. 

Overall the estimate appears to be sound, but it remains unclear how many households would be affected from such a specific set of circumstances as the ones conceived by the House of Commons Library. 


Flickr image courtesy of Digital Internet

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