Childcare costs mean going out to work full-time is now hardly worthwhile for a growing number of "second earners" in middle and low income families, it was reported today.
In the most extreme case - where a second earner takes on a full-time job at the minimum wage - a couple who use childcare could be left just £4 a week better off with two incomes than they would be with one, according to a new study reported in The Observer.
The report, called Counting the Costs of Childcare, by the politically independent Resolution Foundation, finds childcare costs are also eroding incentives to work for those higher up the income scale.
Childcare costs can eradicate benefits of full-time work
Researchers found that a family with two children in which two earners bring in a total of £44,440 could end up just £4,000 better off than a similar family earning £20,000 less, because of the impact of benefits, tax, tax credits and childcare costs.
The report looks at elements of the system of state support which have the effect of cutting a family income in real terms, as a second earner works more.
A second earner from a middle income household who is paid £12 an hour will add £4,500 to the family income while working 13 hours a week. However, if he or she increases the hours above that level, the family income falls off as the combination of childcare costs and withdrawn support through the tax credit system bites into earnings. A middle income is defined for the study as one of between £17,000 and £42,000 for a family with two children in childcare.
Vidhya Alakeson, deputy chief executive of the Foundation and joint author of the report, said: "Despite progress over the last decade, the cost of childcare in the UK still eats up a very large slice of family incomes.
"It's hardly worth a typical second earner going out to work more than a couple of days a week because the family will be barely better off as the extra money is swallowed up by the costs of childcare.
"This is a serious concern because increasing the level of female employment is one of the key routes through which family living standards have increased. We need major change in our childcare system to ensure that work is always worthwhile - and that working more hours or a pay rise results in higher take home pay."
Labour's shadow education secretary Stephen Twigg, who is chairing the party's Childcare Commission, said: "Labour would help families with the cost of childcare. This is critical to ensure that work pays and that parents - particularly women - are able to go back to work if they want. That isn't just morally right, it's good for the economy too."
He added: "We want to explore co-operative models, whereby local parents have a far bigger say in running their local nursery and get a share of the profits. Childcare centres are run successfully along these lines in Sweden and in some parts of the UK already. We want to see this model expand.
"Co-operative childcare can reduce costs to parents, provide more flexibility for those who work and can reach communities which don't have enough nurseries."
A Government spokesman said: "Childcare costs are far too high for parents and the system needs reform. A recent IPPR (Institute for Public Policy Research) report identified it as being 'expensive', 'inefficient' and 'confusing'.
"For too many families, the high costs of childcare mean it is not worth going back to work. That is why we set up a commission to look at the affordability of childcare earlier this year. We are looking at best practice in France, Germany, Denmark and the Netherlands, where high-quality affordable childcare is available for parents, and will be setting out proposals in due course."