Universal Credit

HappyMJ

zagfles wrote: »

Looking the briefing document it seems childcare will be treated basically the same as now under tax credits.

http://www.dwp.gov.uk/docs/ucpbn-10-childcare.pdf

So I don't see how your last sentence makes sense, you're making the assumption that childcare always costs 80% of what they earn, ie that every extra £1 earned results in childcare costs of 80p. But if two mums use the same childminder and one earns double what the other does then clearly their childcare costs as a proportion of what the earn will be vastly different.

There will be a break-even point in terms of the childcare/earnings ratio, just as there is now. This will be a bit lower under UC for those above the tax/NI threshold and a lot lower for second earners under the threshold compared to tax credits alone (not accounting for other benefits).

So it certainly will discourage second earners compared to now, but it will encourage first earners, and that's not a bad thing. One of the problems at the moment is the sharp divide between 2-earner households and no-earner households, because there is far greater incentive for a second earner than a first, due to independant taxation combined with benefit withdrawal.

An assumption has to be made. The poster said her charge out rate was £3 per hour around here it's £3.50 per hour per child. If we assume two children and a small discount let's say £6 per hour therefore someone has to earn at least £7.50 per hour to have childcare costs of 80% of earnings. That's easy enough to earn but once we get earnings above that then tax credits are not worth it and a second working parent needs to figure out if childcare vouchers would make them better off instead. Childcare vouchers can't reduce earnings below minimum wages though.

Now you have said what about 1 parent who earns double the other parent. If you plug the figures through a calculator then it doesn't matter what their hourly rate is. The marginal deduction rate will always be 100.2% until universal credits are no longer in payment.

I agree with you though we do need to encourage at least 1 parent to work and a side effect of this is that it discourages second parents from working full time with childcare but it doesn't stop them from working part time fitting hours around their partner with no childcare costs or once the child is at school.

BigAunty

kkkssshhh wrote: »

Can any body expalin what count as saving in the mean tested benifits.
we never claimed anything apart from CTC and WTC as the OH had a job and i have self employed business.
my question is Does the business stock count as saving in the mean tested benifits as i assume it would be in UC?
..

I can't speak for UC, am not aware of any proposed changes in what this includes but....

Capital (under current means tested benefit definitions), includes things like savings, investments, property and land owned and not occupied by the claimant. Some info here

http://www.ageuk.org.uk/money-matters/claiming-benefits/means-tested-benefits/

zagfles

HappyMJ wrote: »

An assumption has to be made. The poster said her charge out rate was £3 per hour around here it's £3.50 per hour per child. If we assume two children and a small discount let's say £6 per hour therefore someone has to earn at least £7.50 per hour to have childcare costs of 80% of earnings. That's easy enough to earn but once we get earnings above that then tax credits are not worth it and a second working parent needs to figure out if childcare vouchers would make them better off instead. Childcare vouchers can't reduce earnings below minimum wages though.

Childcare vouchers are usually better than tax credits, but it does vary with exact circumstances, eg using the tax credits disregards etc. Generally over the tax threshold, the break-even with vouchers is 100% childcare/earnings ratio, with tax credits it's 90%.

Now you have said what about 1 parent who earns double the other parent. If you plug the figures through a calculator then it doesn't matter what their hourly rate is. The marginal deduction rate will always be 100.2% until universal credits are no longer in payment.

Using what calculator?? This only applies if childcare is exactly 80% of earnings. If childcare is less than 80% of earnings then the MDR is lower.

If childcare is £6 per hour and the parent earns £10 per hour then for every extra £1 earned they'd lose 20p tax, 12p NI, 44.2p UC, gain 60p*0.7 childcare and pay 60p childcare, so they'd be left with 5.8p! A MDR of 94.2%.

The easy way to think about it is to first ignore childcare, and work out that every extra £1 earned gains you 23.8p (after tax/NI/UC withdrawal). Then you pay 30% of your childcare cost (rest paid by UC), so your net gain is 23.8 - 30c where c is the childcare/earnings ratio.

So you can see the breakeven is 79.3%, ie your childcare needs to be below 79.3% of wages once over the tax/NI threshold, to gain from working. This compares with 90% with tax credits.

Below the tax/NI threshold the difference between tax credits and UC is even bigger, with tax credits it's 197% !! ie childcare nearly double your earnings to break even! Under UC it'd be 117%.

I agree with you though we do need to encourage at least 1 parent to work and a side effect of this is that it discourages second parents from working full time with childcare but it doesn't stop them from working part time fitting hours around their partner with no childcare costs or once the child is at school.

Yes, although even without childcare the UC reduces the incentive for second earners, assuming first-earner income too high for HB etc. The MDR will be 65% below the tax/NI threshold, compared with 41% with tax credits, and once above the threshold it's slightly higher at 76% compared with 73%.

And for first earners the incentive is the other way - MDR of 65% compared with 100% under JSA/IS and 96% while getting tax credits with HB & CTB.