Londoners could end up refusing substantial pay rises in a bid to benefit from the Government’s expansion of childcare, MPs heard.
Many parents will be entitled to 30 hours of free childcare when their babies are nine months old, in plans announced by Chancellor Jeremy Hunt in the Budget designed to help more parents get back to work.
But experts said “very odd incentives” in the system mean wealthier parents such as those living in London may be encouraged to turn down pay rises.
This is because families can only claim the free hours if each parent earns less than £100,000.
Christine Farquharson, associate director of the Institute for Fiscal Studies, said: “Obviously, those families are well off.
“But that blunt cliff edge that’s built into the system creates some very odd incentives where a parent with two very young children in London would be better off refusing a pay rise of almost £40,000 rather than give up on the childcare support through these new entitlements.”
Speaking to MPs on the education committee, she added: “It strikes me as a slightly odd design feature to put into a policy that we think is supposed to be about promoting labour supply and supporting parents to work.”
The education committee is carrying out an inquiry into support for childcare and the early years and is asking academics and economists to analyse Mr Hunt’s childcare announcements.
As well as expanding the number of families eligible for 30 hours of free childcare, the Government also announced incentive payments for new childminders of £600, rising to £1,200 for those who register through an agency and a relaxation of staff-to-child ratios in nurseries.
Ms Farquharson said the changes to childcare amounted to a “new branch of the welfare state”.
