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Government Action Needed to Stop the Squeeze on Parents

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It's official - childcare costs cripple family budgets and force parents to make impossible financial choices. For too long, the government - both this one and the previous government - have forced costs down onto parents, who are now at breaking point.

Tonight's BBC Panorama report (Monday) and new research from the Daycare Trust exposes what every parent with small children already knows, childcare is painfully, ridiculously expensive, to a wider audience.

Now we learn that the impact of overwhelming costs for parents compounds the ongoing squeeze on the economy. The government needs to act both for the sake of parents and for the sake of its quest for financial stability.

Strong anecdotal evidence shows that the pressures of working life already force parents to spend less time with their kids. Research by UNICEF published in September last year shows British families are caught in a 'Materialistic Trap' with parents spending a fraction of the time with their kids compared to our European neighbours because of the pressure of work. This has a negative impact on family life and may prove to have wider social implications.

Today's research by the Daycare Trust shows childcare inflation spiralling by 5.8% for kids under the age of two, and 3.9% for those two and over around the UK. Wage inflation languishes at 0.3%. Assuming parents still have a job.

In London it is not uncommon for a nursery to cost £50 per child per day. If you have two kids below school age and you decide to work full time, then do the maths - that equates to £26,000 per year: the average British wage. No wonder parents are deciding to drop out of work to look after their kids.

Interestingly the nurseries and daycare centres are not wallowing in cash - their costs are also increasing and both feel the squeeze.

There are ways to offset some costs, with tax credits, childcare vouchers and 15 free hours per week for three and four year-olds. But working tax credits have been cut, from up to 80% of total costs to a maximum of 70% of total costs. Only the poorest families can claim back costs at this level, but the average claim has dropped by £10 per week or more than £500 per year, and 44,000 fewer families are claiming this help, most likely because they have given up work to focus on childcare to save money.

Parents are already leaving work in large numbers to care for their kids - research by AVIVA, published in August last year shows 32,000 mums left work in 2010 to take control of childcare because the costs are too high. The Daycare Trust research implies this trend is accelerating.

If parents drop out of work, they also drop out of the tax system. 44,000 fewer claims shows a similar number falling out of work, and a corresponding drop for the exchequer, just a the time when tax revenues are at a premium.

Chief executive of the Daycare Trust Anand Shukla said: "These above-inflation increases in the cost of childcare are more bad news for families, heaping further pressure on their stretched budgets as wages remain stagnant and less help is available through tax credits."

Shukla says the pragmatic decision to leave work to save money will force more families into poverty. They want the government to extend free childcare to all two-year-olds by the end of the parliament.

So do I. So does every family with small children. Now we know it is in the government's interest to do something about it.

"At a time when family and government finances are so stretched, and the Treasury is looking to maximise tax revenues and reduce benefit expenditure, it is sheer folly that any parent has to leave work because they cannot afford to pay for childcare," said Shukla.

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