An analysis by the Resolution Foundation think-tank and the Gingerbread charity found that, under the single benefit, which is due to replace most means-tested benefits and tax credits for working-age adults from 2013, some parents will lose over 94 pence in every pound earned as they increase their working hours.
The report, Childcare Support and the Hours Trap, shows that a single parent with one child earning the minimum wage would keep only 6 pence of every pound earned for every hour worked over 24 hours, while a second earner in a couple with two children on the living wage, defined as the minimum hourly wage necessary to meet basic needs, would keep only 9 pence of every pound earned over 20 hours a week, and take home no extra cash at all from working beyond 30 hours a week.
Up until March 2011, the tax credit system reimbursed 80 per cent of childcare costs up to £175 a week for one child and £300 for two or more children, to families working at least 16 hours a week on low to middle incomes. This rate was reduced to 70 per cent in April.
The Universal Credit will extend support to people working fewer than 16 hours a week to pay for childcare. However, the Government has said that it will not increase the amount that it spends on childcare support, despite more parents being eligible, and so many parents will receive less support towards their childcare costs than they currently receive.
The report is modelled on support for 70 per cent of childcare costs to £125 and 80 per cent with a £100 limit. It recommends that the rules for childcare support that were in place before April 2011 should be kept under the Universal Credit, but with support extended to parents working less than 16 hours.
The report says this scenario addresses 'the hours trap' in every area tested by allowing a modest but steady increase in net income. Such a system would be relatively small compared to the overall cost of Universal Credit, it claims.
Gavin Kelly, chief executive of the Resolution Foundation (pictured), said, 'Increases in childcare costs risk driving 
parents - especially mothers - on low to middle incomes out of full-time work. Doing more than part-time work just wouldn't make you better off. Living standards are already severely squeezed and this would be a further hammer blow to working families.'
A spokesperson for the Department of Work and Pensions said, 'We have been taking time to consider this issue carefully, and have been working closely with relevant organisations, like Gingerbread, on the rate at which childcare will be paid and the way this support will be delivered.'
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