Family finances: Navigating the benefits for children maze

By Kate Saines

Where raising kids is concerned everyone seems to have wildly differing viewpoints. But there's one area in which parents are in conformity and that is that having children costs an absolute fortune.

The latest set of figures on this subject reveal the cost of raising a child from birth until their 21st birthday now totals over £210,000.

To put it into context, this is more than the price of the average UK house, which according to Halifax was £162,657 in February.

And if you break down this figure, you’ll find you will need £10,040 a year, £836 per month or £27.50 a day to keep your offspring in the manner to which they will become accustomed.

Insurer LV=, which compiled the figures, said the cost of raising a child today is up 50 per cent from the last time it ran the report in 2003.

The bulk of the cost, it would appear, is created by childcare, which costs parents £67,430. The second highest expenditure is education, setting parents back £55,660.

Education, in this piece of research, includes school uniforms, after school clubs and university tuition – it does not include private school fees.

Clothing, holidays and food eat up most of the rest of the ‘child care budget’.

And just because your children are small, don’t think this means the costs will reflect this. The ages of one to four are the most expensive, costing parents £13,397 a year.

These figures make depressing reading – particularly if you are one of many parents across the country struggling through these tough economic times.

A family with two children would need to be bringing in an income of at least £40,080 a year to cover just the cost of those kids. And that is without factoring in the mortgage and household bills.

Of course, in the real world most parents simply cannot afford to spend this amount of money so childcare and university tuition are costs that many parents forego, but not necessarily through choice.

And as an additional kick in the teeth, parents are now being told that many of the benefits they previously received are being reduced as part of the many cost-cutting measures being employed by the coalition government.

The benefits system in this area is confusing, but for many the tax credits, benefits and other support is essential for everyday survival.

And, according to charity Turn2us, which helps people in financial need access money available to them, a lot of the benefits available are simply not being claimed.

Karen Holmes, welfare benefits specialist, Turn2us said: “It is unacceptable that, despite the UK being one of the wealthiest nations in the world, so many families live in poverty.

“At the same time, uptake of benefits is patchy, especially for hard to reach groups, with billions in welfare benefits and tax credits going unclaimed each year.”

So what are we entitled to? And how will this change over the next few years? The answer to this is difficult, as Ms Holmes explains, some changes affect every claimant, some just those with certain levels of income.

Here’s an overview of what’s available to help you understand a bit more.

Child Benefit

Child benefit is currently a universal award received by all people responsible for bringing up a child regardless of their income, means or wealth.

Currently all parents receive £20.30 per week for their first child and £13.40 for subsequent children, and these rates have been frozen for the next three years.

But this is set to change. From January 2013 families where there is a higher rate tax payer (someone earning over £43,875) in the household will not be entitled to child benefit.

This has naturally prompted its fair share of controversy. Not least from those angry about the arbitrary nature of the cut off point. It means a single parent earning £44,000 will not receive the benefit, while a couple both at work earning £42,000 each will continue to receive the award.

And those earning just below the threshold who pick up a modest pay rise would lose Child Benefit.

Experts are suggesting people affected in this way could avoid this by using a method called salary sacrifice. This is where an employee takes a proportion of their salary in the form of a benefit such as company car, childcare vouchers or money for the pension pot.

Child tax credit

Like Child Benefit, working tax credit is also paid to anyone responsible for bringing up a child. However, income is already taken into account on this one and the more you earn, the less you’ll receive in tax credits.

The amount you can receive through this benefit is calculated by taking into account various factors – or ‘elements’ to give it its technical name.

One example of an element used to calculate tax credit is whether or not you have a child under the age of one. The more ‘elements’ you can tick the box for, the more tax credit you will be awarded.

Karen Holmes of Turn2us, explained that anyone who is entitled to income support, income-based job seeker’s allowance, income-related employment and support allowance or pension credit will automatically qualify for the maximum amount.

“For everyone else,” she said, “their maximum tax credit award is reduced by 39p for every pound they have above the relevant income threshold. From April this will increase to 41p for every pound.”

This is not the only change being introduced on April 6th, 2011.

One of the elements being removed from this date is the ‘child under one’ element. You will no longer receive extra payments for having a child aged one or under.

Before April 6th, provided a person’s income was below £50,000 they would receive at least the family element of child tax credit which is £545 a year.

Ms Holmes explained that entitlement to this is not lost completely until a person’s income exceeds £58,000.

After April 6th, this £50,000 threshold will be reduced to £40,000.

Working tax credit

This is paid to people who are working – either employed or self employed for more than 16 hours a week – but are on a low income.
Like child tax credit, it’s made up of elements. The basic element is paid to any working person who meets the conditions. But there are other elements for single parents, couples, disabled people and those working 30 hours per week.

There is also a childcare element for those who need to put their children into ‘registered or approved childcare’.

Ms Holmes explained: “This accounts for relevant childcare costs of up to £175 a week for one child and £300 for two or more children.

“Currently 80 per cent of the actual childcare cost, up to these limits, can be included in the calculation of an award, but after April this will drop to 70 per cent.”

Ms Holmes also pointed out that from April 2012, couples with children will have to work at least 24 hours a week between them in order to qualify for working tax credit. One of them must work at least 16 hours of those 24 hours.

Other financial support

It’s worth exploring all the potential benefits you could be entitled to – there may be some you didn’t realise existed.

Jobseeker’s allowance and employment support allowance are available for parents who are not in full time employment.

Ms Holmes said these can only be claimed if neither partner is counted as being in full time employment.

C old weather payments, free school lunches and health benefits are also available to families on certain benefits including income support and income-based jobseekers allowance.

And Sure Start Maternity Grants, a one-off payment of £500, are also available to women who are pregnant (within 11 weeks of the due date) or have given birth in the last three months and are receiveing a qualifying benefit.

It’s really worth finding out if you are entitled to benefits, as even with the changes coming into effect you might still be eligible.

Turn2us encourages people to use its benefits checker on its website www.turn2us.org.uk where they can find out what their personal entitlement to means tested benefits and tax credits might be.

Use the Myfinances.co.uk comparison tables to keep your bills low.