Million women are 'missing' from Britain's workforce

Changes to family and tax policies would boost the economy

A million women are "missing" from the UK workforce because childcare provision and family policies fail to match those of other developed countries, a major report reveals today.

Britain is ranked 15th, lower than Slovenia, for female employment among the 34 Organisation for Economic Co-operation and Development (OECD) countries because of a lack of funding for childcare, unbalanced parental leave and the way tax credits and allowances do not sufficiently encourage women to return to work, the report says.

The report by the Resolution Foundation, a think tank representing the "squeezed middle", argues that living standards would be improved, particularly for families on low to middle incomes, if more women were in work. Nations that are ahead of Britain for female employment include those in Scandinavia, renowned for family-friendly policies, but also Russia, Germany and Canada.

The findings suggest that Britain's sluggish economic growth would be boosted by improving female employment. George Osborne, the Chancellor, announced more free childcare places for lower to middle income families in his Autumn Statement last month, but is also understood to be examining extending childcare provision further to increase women's presence in the jobs market.

However, Mr Osborne has also slashed child benefit for middle-income earners and cut tax credits for families, which could have the opposite effect.

David Cameron has pledged to introduce a married couples tax allowance but, in its report, the Resolution Foundation calls for a "radical" re-examination of the tax allowance system, including recognising families beyond married couples.

While there are not one million jobs available in the current economic climate, the think tank said that improvements in family policies and childcare provision would be a potential jobs market in themselves – as women would be looking for work and setting up businesses, while over the longer term there would be more employment available.

James Plunkett, the author of the report, The Missing Million: The Potential for Female Employment to Raise Living Standards in Britain, said it was "profoundly worrying" that the rise in female employment had levelled out since the early 1990s and represented Britain's "own glass ceiling".

Long-term trends in female economic activity rates have "flatlined": after rising 7.4 percentage points in the 1980s, women's participation in work rose just 0.9 points and 1.4 points in the 1990s and 2000s respectively.

He said both the coalition and the last Labour government had failed to address the issue, adding: "Raising our game to the rates achieved by better-performing countries would see as many as a million more women in work. Sceptics might say the growth in women's work is slowing because we've reached the end of what can be achieved. Yet UK female employment still hugely lags behind male employment."

The relative cost of childcare provision appears to be a major factor in whether a woman stays at home or chooses work.

In Sweden, children between one and six go to pre-school and the maximum a family has to pay is about £114 a month per child, with discounts for subsequent children. The remainder is funded by the government.

By contrast, state-funded childcare in the UK starts at three – or two for lower-income families – and is limited to 15 hours a week.

The report shows that the more children women in the UK have, the worse their employment rates compared with other developed nations. The female employment gap between Britain and the five best countries for women with one child is 12 per cent, but among mothers with three or more children, the employment gap widens to 24 per cent.

Education also plays a major part when comparing Britain with the best countries. Among women who went to university, the employment rate in Britain is 86 per cent, just two percentage points lower than the top nations at 88 per cent. Yet among women who left school at 16, the gap widens considerably: the employment rate is 43 per cent in Britain, but 65 per cent among the best countries.

The UK performs least well for those with children under three – suggesting the problem lies with the age at which free state-funded childcare starts in the UK.

In the UK, 10 per cent of state spending on family policy goes towards maternity and paternity leave, compared with 20 per cent in Sweden. Again, 26 per cent of the spending in the UK is on day care, half the proportion spent in Sweden, at 52 per cent. The largest proportion of family-related state spending in the UK is on tax credits, at 29 per cent, compared to about 2 per cent in Sweden.

The report argues that, in a system that tops up incomes with tax credits rather than cutting taxes by recognising couples or children through the income tax system, British women are less likely to seek work. The child tax credit, for example, is not linked to work, while working tax credits fall according to the amount of hours an individual does, which can deter women from switching from part-time to full-time work. Often, the cost of childcare makes staying at home, rather than working part-time, more affordable. Mr Plunkett argued, however, that tax credits should not be cut overnight but replaced over time by a family tax allowance. Tax allowances would encourage more women to work because it would act as a tax cut.

Mr Plunkett said Mr Osborne appeared to be discouraging women from work by cutting support for childcare costs at a stroke. He said "huge reductions" in tax credits meant that second earners, mostly women, were keeping less of each pound they earned.

The way child benefit is paid in the UK could also make a difference. Iceland – which has the highest rate of female employment in the OECD – pays child benefit up to the age of seven, while in the UK it is 16, or 18 if the child is in full-time education.

The report says: "The UK has an individual model of income taxation which treats the members of a couple as discrete individuals, while, by contrast, it is common in other countries for families to be recognised in the tax system either through tax allowances that can be transferred between partners (or spouses) or through additional tax allowances for children. Recognising families in this way (or, importantly, families headed by couples) reduces the tax liabilities relative to single (or in some cases unmarried) people."

Comment: 'The key is to give people choice in childcare'

By James Plunkett

If women's work was a motor of rising living standards in the late 20th century, today that motor is spluttering. For low- to middle-income Britain, this is very worrying, as women's work has made up more than three-quarters of its income growth from work in the past 40 years.

So how do you boost female employment? One important tool is family policy, from affordable childcare to smart parental leave policy. Evidence shows that couples with children want to balance their caring responsibilities more evenly. The key is to give people this choice.

The coalition may say that it is wooing female voters but support for childcare costs was one of the first items it cut. Meanwhile, huge reductions in tax credits mean second earners (mostly women) keep less of each pound they earn.

But Labour also has hard questions to face. They may rue not investing more heavily in services to support women's work when they still could.

James Plunkett, is the author ofThe Missing Million report andsenior analyst at the Resolution Foundation

Case Studies

Karen Millar, 36

Mansfield, Nottinghamshire

Karen, who works full-time at a children's centre, and husband, Darren, 38, a full-time computer programmer, have a combined income of about £40,000 and lost more than £200 a month when changes to the tax credit system and childcare element came into effect in April.

The couple from Mansfield, Nottinghamshire, reduced monthly childminder costs for their daughter Yvie, two – the youngest of four – to £400 by Grandma helping one day a week and Darren working from home another.

"Every month we're reviewing whether it's worth both of us working, and whether it might be worth one or both of us going part-time, or one giving up work altogether and doing night work while the other works in the day. Both me and my husband have done what the Government wanted when we were at school and college and uni, and it seems like a bit of a slap in the face. The only thing that we can see working for us is one of us giving up our chosen career to do night-time work in a supermarket or something. It just seems a waste of all those years studying and racking up debts from uni and then not being able to do something that you enjoy.

"We've spent many years fighting for women's rights and equal pay, and it just seems we've taken a step back."

Johanna Lindhe, 33

Stockholm, Sweden

Johanna Lindhe, 33, a Swedish sonographer, and her husband, Peter, 36, who works in marketing, are a middle-income couple paying 30 per cent in tax.

Johanna works part-time (70 per cent) and uses the monthly 1,000 Swedish krona (£95) the family receives for each child from the government to pay the 2,000 SEK monthly bill for childcare for daughters Vera, three, and Elsa, five, pictured left with their mother.

"They don't start school until they are six here, so between one and six they are at pre-school. In Stockholm, you can have your child at pre-school 30 hours a week when you are at home with another child. When you start to work – full- or part-time – you can have your child there full-time. You pay [up to] 1,200 SEK for one child a month but when you have a second child at pre-school it is cheaper. For the third child you get a bigger discount and for the fourth child pre-school is free.

"When we are on maternity leave we get 340 days: for 250 of those you get 80 per cent of your salary, and then for 90 days it's less. You can dispose of these days how you want, but you have to use them before your child is eight.

"I don't know anyone who is a stay-at-home mum. Everybody gets back to work because in Sweden your workplace has to allow you to work part-time until your kid is, I think, eight years old."