Problem
Bob and Marlie are a couple with two young children, Birdie, aged 9 months and Wayne, aged 2. Marlie has been on maternity leave and is due to go back to work full time as a healthcare assistant. Bob is employed full time as a landscape gardener. Both parents are in their late twenties and live in Kingston, England. They are looking into arranging childcare once Marlie returns to work.
I. Bob has the option to work flexibly by halving his hours from 40 to 20 for the next three years. Under this arrangement, his monthly gross pay will also halve to £823.
Bob says that if he takes this option, his financial sacrifice might be more than just the £823 per month in lost income over this three-year period. Identify two factors that might cause Bob to have a much larger financial loss over his lifetime if he takes this option of going part-time.
II. Marlie could return to her gross annual full-time salary of £22,880 per year (based on 40 hours per week). Her employer introduces changes to working practices that will also allow her to reduce her hours and her pay by up to 50%. The household is discussing the short-term opportunity costs of Marlie taking the part-time (50%) working option, rather than Bob.
With respect to gross monthly earnings only, explain and calculate the short-term opportunity cost for the household of Marlie going part-time as opposed to Bob.
III. If both Marlie and Bob decide to stay in full-time employment, their net annual salaries would be £17,363.99 and £19,451.93, respectively. Marlie also receives child benefit, equating to £1,885 per year. Birdie and Wayne would attend a nearby local nursery full time from Monday to Friday, at a cost of £556 per week for both.
Using the Tax credit calculator where appropriate, calculate the couple's total tax credit entitlement and their net household income after childcare costs.
IV. The household is also considering a second option, namely whether both should halve their hours, keeping things equal between them and sharing their time looking after the children so that they do not pay for the nursery.
Using the Tax credit calculator where appropriate, work out their tax credit entitlements and net household income after childcare under this option, and compare the short-term financial situation of the household with the previous option of both of them staying in full-time employment.