New Deal for Parents
"This report is an important contribution to the conversation about how we tackle the financial barriers to parenthood, and reflects much of what we hear from our nine million users, particularly around low rates of statutory maternity and paternity pay and the importance of tackling the Motherhood Penalty in the workplace."
Britain urgently needs ‘A New Deal for Parents’ to close the birth gap between the number of children people want and have. A record low 1.49 children were born per woman in 2022; despite women staying, they want 2.35 children on average.
Declining birth rates mean more people are being locked out of family life, which will have serious social and economic consequences for Britain. Making it easier for everyone to have the families they want is in all our interests.
The high cost of parenthood and the motherhood penalty on careers are the significant drivers of people delaying or having fewer children than they would like.
Two-fifths of would-be parents blame financial insecurity for putting off having the children they want. Families are three times more likely to be behind on their bills than households without children. A fifth are in serious financial difficulty. A majority (53%) of women aged 18-35 in one survey said the impact on careers discouraged women from having children — the second biggest reason behind the effect on household finances.
But despite these challenges, Britain’s tax policies, social security system, and parental employment rights do not adequately support working parents. A New Deal for Parents, the first in a series of papers behind Onward’s campaign to make Britain a better place to start and raise a family, is backed by Mumsnet and lays out reforms to support working parents in having the families they want.
The tax system
A major consequence of the UK’s individual taxation model is that children are not properly recognised in the tax system. This is different to many other similar countries, including France and Germany, and it means the UK’s tax system is unusual in not recognising the contribution parents make by having children nor the financial strain they face.
We recommend the introduction of a tapered child tax allowance, allowing the UK tax system to ‘see’ and account for children. The child tax allowance will essentially raise the personal tax allowance for parents by £5,000 over five years and be most generous when children are youngest. It would help 12.6 million working parents, saving a family with two working parents £2,000 on average. This measure could be funded by freezing the personal tax allowance for other taxpayers for five years.
The High Income Child Benefit Charge
The High Income Child Benefit Charge is the clawback mechanism that reduces a family’s Child Benefit payment after the parents reach a certain income threshold. It is another aspect of the tax system that fails to reflect the contribution parents are making.
That is because, despite recent and welcome reforms, the High Income Child Benefit Charge continues to create high effective marginal tax rates for families and is particularly burdensome for single parent families. Even post-reform, the High Income Child Benefit Charge affects 22% of families with dependent children, some 1.8 million families in total, up from 13% with dependent children when it was introduced in 2013.
We recommend the abolition of the High Income Child Benefit Charge, ending the means-testing of Child Benefit.
The social security system
The two-child benefit limit, introduced in 2017, caps the child event of Universal Credit and the Child Tax Credit so that parents do not receive these benefits for any third or subsequent children born after April 2017. It is affecting an increasing number of families, primarily working parents. As of April 2024, the cap meant that around 450,000 families were affected.
The policy increases children’s risk of being in poverty. In 2022/23, 4.3 million were in relative low income after housing costs, the highest level of child poverty after housing costs in 30 years. The cap also sends a harmful signal that the Government does not value children.
We recommend the two-child benefit limit be abolished.
Parental employment rights
The ‘motherhood penalty’ on careers and the perceived trade-off between career and parenthood is one reason women are delaying or choosing to have fewer children than they wish.
Good parental employment rights should the following four-part test: provide parents and prospective parents with certainty; allow parents to spend the time they want to with their children in the early years; ensure that parents have a smooth transition back into the labour market; and ensure the UK can maximally benefit from working parents’ economic contribution.
To meet these tests, reforms must be made, including:
The tax system
A major consequence of the UK’s individual taxation model is that children are not properly recognised in the tax system. This is different to many other similar countries, including France and Germany, and it means the UK’s tax system is unusual in not recognising the contribution parents make by having children nor the financial strain they face.
We recommend the introduction of a tapered child tax allowance, allowing the UK tax system to ‘see’ and account for children. The child tax allowance will essentially raise the personal tax allowance for parents by £5,000 over five years and be most generous when children are youngest. It would help 12.6 million working parents, saving a family with two working parents £2,000 on average. This measure could be funded by freezing the personal tax allowance for other taxpayers for five years.
The High Income Child Benefit Charge
The High Income Child Benefit Charge is the clawback mechanism that reduces a family’s Child Benefit payment after the parents reach a certain income threshold. It is another aspect of the tax system that fails to reflect the contribution parents are making.
That is because, despite recent and welcome reforms, the High Income Child Benefit Charge continues to create high effective marginal tax rates for families and is particularly burdensome for single parent families. Even post-reform, the High Income Child Benefit Charge affects 22% of families with dependent children, some 1.8 million families in total, up from 13% with dependent children when it was introduced in 2013.
We recommend the abolition of the High Income Child Benefit Charge, ending the means-testing of Child Benefit.
The social security system
The two-child benefit limit, introduced in 2017, caps the child event of Universal Credit and the Child Tax Credit so that parents do not receive these benefits for any third or subsequent children born after April 2017. It is affecting an increasing number of families, primarily working parents. As of April 2024, the cap meant that around 450,000 families were affected.
The policy increases children’s risk of being in poverty. In 2022/23, 4.3 million were in relative low income after housing costs, the highest level of child poverty after housing costs in 30 years. The cap also sends a harmful signal that the Government does not value children.
We recommend the two-child benefit limit be abolished.
Parental employment rights
The ‘motherhood penalty’ on careers and the perceived trade-off between career and parenthood is one reason women are delaying or choosing to have fewer children than they wish.
Good parental employment rights should the following four-part test: provide parents and prospective parents with certainty; allow parents to spend the time they want to with their children in the early years; ensure that parents have a smooth transition back into the labour market; and ensure the UK can maximally benefit from working parents’ economic contribution.
To meet these tests, reforms must be made, including:
Phoebe Arslanagić-Little, Head of New Deal for Parents at Onward, said: “Many people delay having children or are not able to have as many as they wish, because they feel priced out of parenthood. But instead of smoothing the way for parents and prospective parents, our tax, benefit and employment rights systems are letting them down: children are our future.
“Britain needs a new deal for parents. These reforms will give new mums and dads more certainty and financial stability with better parental employment rights sends a clear signal to parents that we value them and will allow more people to have the families they want.”
Justine Roberts, Mumsnet Founder and CEO said: “Whether or not to have children is a deeply personal decision, but it’s one that’s often influenced by financial factors. We know from the millions of conversations on Mumsnet that high childcare costs, the housing crisis, and the effect of the Motherhood Penalty on women’s careers all pose barriers to parenthood in the UK.
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