Give Families the Credit

Too many children in this country are growing up in poverty. Too many parents feel that they have no choice in how to raise their children. And too many families find themselves at a disadvantage within the tax system because of their decision to have one parent stay home to care for their children.

The CSJ has designed a radical new policy package, The Family Credit, that dares to put parents in charge of a budget to spend in raising their children. This initiative, rooted in our belief that parents know best, seeks to give mothers and fathers more support when they most need it – in those first years of a child’s life, when families are more likely to be struggling financially. Investing in children at this stage can overcome the attainment gap that affects too many young lives.

Our Family Credit is designed to meet the demands of parents with young children, captured in our landmark national poll with Public First.

Political discussions have focused on retaining or removing the present two child benefit cap policy. The CSJ takes the view that the focus should not be on the number of children per household but on their age: children under four are in their most formative years and also the most likely to be living in poverty.

This initiative is composed of three main elements: a transferable tax allowance, frontloaded child benefit, and a childcare budget paid directly to parents. These have been costed and are close to cost neutral for Treasury.

1. Transferable tax allowance
• Make transferable up to 100% of a married/civilly partnered person’s personal allowance to the other partner in the couple. Some of this will be clawed back by the benefits system (through families losing eligibility, or part of payments owing to tapers/step-changes on rates as extra income rises). This delivers around £3.7bn tax foregone and approximately £700k clawed back from the benefits system, with a final Exchequer cost of £3bn in 2024/25 terms.
• Exempt current Child Benefit from all other benefits calculations (so it is always outside welfare), with a cost of £250k.
2. Frontloaded child benefit
• Target now exempted remaining Child Benefit at children aged 0-4 years to alleviate poverty (as poorer older children’s families claim Universal credit), with a cost of £9.9bn in 2024/25 prices. This will give an annual award for under 5 year old children of just under £3,700 per annum or just under £70 per week per child.
3. A childcare budget paid directly to parents
• Increase availability and generosity of Free Childcare from 39 to 47 weeks The cost of increasing availability to all under 5s over the new period would be £7.1bn in 2024 terms, with annual payment for under 5 year olds varying by local area, to reflect the wide variety of average childcare rates per area. We suggest compensation to families is capped at the 60th percentile, so most typical families are fully covered by the scheme. Removing the Universal Credit childcare element (as everyone can claim a full year’s worth of cover excluding holidays) yields savings of £1.3bn to Treasury.
• We propose this childcare ‘budget’ to be paid directly to parents to spend as they see fit – whether on formal care, as now, or on informal care, provided by the extended family. The additional resource, when combined with the other elements of Family Credit, could also enable parents to forfeit paid work in favour of providing care themselves.

We recognise that by targeting the most vulnerable in our society – children whose first years are spent in poverty – our proposal risks creating losers as well as winners. The Family Credit, for example, will result in some families not on UC, with a sole earner and older children, losing £25.60 per week; while a family not on UC with two children aged 1-4 years old, and two earners (and one using only half their PA) will be £429.22 better off per week. This dramatic shift in our childcare system reflects our commitment to supporting children in their most formative early years: evidence shows that investing in children’s early years repays huge dividends in terms of reduced child poverty, reduced need for services, and boosted productivity in the longer term.