Last week, Nick Clegg gave a speech at the launch of the Cityfathers, a network of working dads based in the Square Mile and Canary Wharf. In it, he focused in particular on changes to parental leave coming into force next year, which will allow couples to transfer a portion of their maternity leave entitlement to fathers after two weeks. While the Institute for Public Policy Research (IPPR) has argued that we should go further, creating a ‘use it or lose it’ block of leave for fathers, in general the Coalition’s move has been regarded as at least a first step in the right direction for parental leave policy.
But in related areas of government policy, the Coalition has been heading in the opposite direction. Statutory maternity and paternity pay were included in the 2013 welfare up-rating bill, with rises of only 1 per cent, significantly below inflation, for three years from 2013 to 2015. This means that parents will lose out to the tune of around £224 relative to what they would have received under the previous system of inflation-linked up-rating. Given that we are already fairly low down the OECD rankings on paid parental leave, this move risks branding the UK as a society that does not place sufficient value on supporting parents during the vital first months of a child’s life.
But many of the Cityfathers listening to Nick Clegg yesterday will be largely unaffected by this decision. In the UK’s large corporate businesses, employees are highly likely to have access to more generous occupational maternity and paternity pay. New IPPR research, published last week, shows the extent of the problem; 76 per cent of employees in large workplaces (more than 249 staff) have access to occupational maternity pay, and 64 per cent paternity, against less than a quarter in micro firms (those with less than 10 staff). Clearly, increasing the proportion of small and medium-sized businesses that offer occupational benefits could do a lot to make up for the falling value of statutory pay, giving families more financial security
But what is it about small firms that holds them back from doing so? At its core, it is a question of cost. Small businesses operate on tighter margins, and face greater disruption when a member of staff goes on parental leave, being unable to reallocate employees from elsewhere in the firm. For many, further increases in these largely unpredictable costs are simply not feasible.
In our report, we argue that more can be done to turn the risk of offering higher levels of occupational benefits, such as maternity and paternity pay (as well as sick pay), into a more predictable cost. In Demark, businesses pay monthly premiums into large regional funds, based on their number of employees, which then pay out higher levels of occupational benefits when employees take parental leave. In the UK, a private market does exist for similar, ‘Group Risk’ insurance, but it is aimed very much at large corporates, with the premiums unaffordable for smaller businesses. This is mainly because of the administrative costs of dealing with a large number of small payments. If an intermediary body were able to pool the payments and risk of many small firms, it could have the potential to overcome this barrier.
Drawing on the lessons of the Danish system, our report calls for employer associations such as the Federation of Small Businesses to work with large insurers to assess the feasibility of setting up such a scheme in the UK. While a business-led approach is preferred, there are also actions the government could take, such as allowing small firms to write of the cost of payments into the scheme against corporation tax.
The inequality in access to occupational maternity and paternity pay, combined with the squeeze on statutory benefits, means many families face a real risk of sharply lower living standards, and even poverty, when their children are born. Against this challenge, the tweaks to parental leave coming in next year appear unambitious at best. Instead, we should be looking at innovative new solutions, such as adopting a Danish insurance model, which have the potential to have a real impact for families in the UK.
* Spencer Thompson is an Economic Analyst at the Institute for Public Policy Research.