Patrick Nolan

Reforming maternity pay

Reforming maternity pay
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While it is widely accepted that the costs of family breakdown are significant, there is less agreement on policy options to support families. Pete Hoskin set out arguments against a simplistic subsidy approach earlier today. Putting together ideas that work is made even harder by the catastrophic state of the government’s books. New policies should provide real value for money and be (at least) revenue neutral.

In our latest report, Reform identified a set of cost-effective reforms to one area of support for new families – maternity and paternity pay and leave – which is currently underperforming. This system of support receives surprisingly little attention, although it currently costs taxpayers around £2 billion every year.

The report finds that Britain has one of the most mother-centric leave policies in the developed world. Fathers are cut out and, as the CSJ reports, fathers’ absence from family life can harm children’s emotional and intellectual development. The rigid structure of maternity leave, with a prohibition on more than a few “keep in touch days,” reinforces a gender pay gap; makes women take an “either-or choice” about work or home; and penalises families at the low end of the income scale.  Mothers earning £50,000 and taking six months leave get nearly £8,000 from the taxpayer.  Mothers earning the minimum wage of £12,000 per year receive only half as much.  Because they cannot afford the time off, low earning women go back to work quicker – so they face a “double crunch” of low pay and short leave.  A better approach is to reform maternity pay to make it flatter, fairer and more flexible.  It could be paid over the first six months and shared between parents. Both parents could be provided with 6 month entitlements to unpaid leave. These proposals could be implemented without having to spend more taxpayer money.

These changes would provide families with greater space to decide how to balance work and family and spend more time with their kids. While higher earning mothers who take the full leave may see their total payment fall, they will gain from the ability to work flexibly during the first year and to share the payment with the father. Employers would also gain by not having to deal with government paperwork. All they would need to provide is flexible unpaid leave.

These changes would also encourage fathers to give their children greater time. This would not only benefit the family while the child is very young, but would help establish the bonds for a healthy relationship as the child grows older. Rethinking the support provided to families at the start of a child’s life should be central to efforts to address the causes and costs.

Patrick Nolan is chief economist at Reform.