When factoring in taxes and childcare fees, as well as a lack of benefits, its report showed tens of thousands of parents who work longer hours are actually losing money as the cost of childcare outweighs their income.
This is creating a marginal tax rate – the amount of additional tax paid for every pound earned – of more than 100% for some working parents, created by rising childcare costs as parents increase their hours at work.
The impact of high childcare costs:
Parents struggling with childcare costs
Rising childcare costs outstrip maternity pay
Childcare staffing crisis demands flexibility from employers
The research highlighted some major issues with UK childcare, including high up-front costs, a lack of free childcare for children under two, and a lack of reliable wraparound care (outside of school hours) for children through primary school.
Anna Whitehouse, author and founder of flexible working campaign Flex Appeal, said reforms of the childcare sector should form a key part of any levelling up plans from the government.
She told HR magazine: "We are living in a truly terrifying time for mums returning to work from maternity leave. Paying to go to work simply doesn't make any sense, and it's why so many mums fall at the start line. If we are serious about levelling up our economy then we need to pick our childcare sector up off its knees and start to make it all make sense.
"Lower earners are trapped; they have rising bills and yet increasing their hours could make them less well off, this isn't a solution. For decades mums have Sellotaped their careers together, twisting like pretzels to make it all work.
Businesses should be accommodating of the childcare needs of their employees, Whitehouse added.
She said: "What we can change today is more support, flexible working that doesn't come with a price tag. Right now, employers need to understand that we are facing the biggest wobble with formal childcare than ever before. Thousands of nurseries have collapsed this year alone and more are set to follow.
"It’s crucial that they understand that parents are going to have to figure this out and fill in their childcare gaps. It's time to support them as they do."
Henry Parkes, IPPR senior economist and the report’s co-author, said the UK's current childcare system discourages parents from working more.
He said: “Childcare in England isn’t working – for children, parents or providers – while soaring inflation is only making a bad situation worse. Costs are already the second highest in the developed world as the average family have to pay over £7,000 a year for just part-time care for a child under two.
“On top of this, the current childcare system has now created an environment which disincentivises parents from work. In the midst of a cost of living crisis, it is nonsensical and impractical to have families who are worse off in employment. You should not be worse off from working more. The system needs change.”
IPPR made several recommendations to government help alleviate the cost:
- Heavy investment in the childcare sector
- Extend wraparound care through schools to provide activities from 8am to 6pm
- Extend core free childcare hours offer to 30 hours per week for all three- and four-year-olds year round. The current format gives 30 free hours for 38 weeks of the year if parents are eligible
- Introduce 15 hours of free childcare for all pre-school-aged children for 48 weeks of the year.
