Patrick and Lydia are a couple with their daughter Nina, who has just turned 2. They live in Norfolk. Lydia has been working part-time after her maternity leave (20 hours per week) and could carry on doing so until Nina is in primary school. However, Lydia is reconsidering and is looking into going back to a full-time job now rather than in 3 years time. Patrick is a full-time librarian and works 40 hours per week. Nina currently attends a nursery part-time (25h per week) for 125 per week (paid for all 52 weeks). She would attend nursery full-time for double the price if Lydia took the full-time job (at 40 hours per week).

Lydia currently earns 8,600 per year (same amount after income tax and national insurance) and Patrick, 20,000 (17,135.84 after tax and national insurance). If Lydia takes the full-time job (which involves changing role), her gross earnings will increase to 18,000 (15,775.84 after tax and national insurance). Lydia also receives child benefit for Nina, equating to 1076.40 per year.

2.1Using the Tax credit calculator, calculate the couples total tax credit entitlement and their net household income after childcare costs in each option.

2.2Explain which option is more favourable in the short-term and what factors contribute to this being the case.