Universal Credit: childcare Contents


Parents’ and carers’ decisions about whether and how much to work are closely tied to being able to access affordable, good quality childcare. The Department for Work and Pensions (DWP/the Department) aspires for 200,000 more people to work under Universal Credit than under the system it replaces (the “legacy system”), and for people already in work to contribute over 100 million additional hours every year. Its success or failure in achieving these aims depends largely on working parents. That means that making childcare payments work is critical to the success of Universal Credit.

But the design of Universal Credit childcare support directly conflicts with the aim of making it easier for claimants to work, or to work more hours. Universal Credit claimants must pay for childcare up-front and claim reimbursement from the Department after the childcare has been provided. This can leave households waiting weeks or even months to be paid back. Many of those households will be in precarious financial positions which Universal Credit could exacerbate: if, for example, they have fallen into debt or rent arrears while awaiting Universal Credit payments. Too many will face a stark choice: turn down a job offer, or get themselves into debt in order to pay for childcare. The Department says that its approach to reimbursing childcare costs under UC is intended to reduce high rates of fraud and error in the legacy system. But in prioritising this objective it has created a barrier to employment. For some households this will be insurmountable.

Direct payments of Universal Credit childcare support would alleviate the problem of upfront costs, give providers much-needed certainty of income, and substantially reduce the risk of fraud and error. The Department says that allowing Universal Credit claimants to have childcare payments made direct to providers would require changes to Universal Credit’s payment systems, which will take some time to make. That does not mean that direct payments are not the right thing to do. The Department should develop Universal Credit’s systems to allow direct payment of childcare costs to providers.

In the interim, the Department must do more to help claimants with upfront costs. It currently offers two options: Budgeting Advances, and the Flexible Support Fund (FSF). Budgeting Advances are not the solution. They are loans that must be repaid, requiring claimants to take on debt. DWP should make clear to its Work Coaches and other Jobcentre Plus staff that claimants struggling with the day-to-day costs of childcare should be directed to the FSF in the first instance.

The FSF offers non-repayable, discretionary grants to help claimants overcome barriers to work. It should be invaluable in helping claimants struggling with the upfront costs of childcare. But the Department’s limited data shows the Fund has been underspent in every year since 2012–13, and the proportion spent on childcare is minute. Moreover, the Department does not systematically gather detailed data on the FSF, and has no plans to do so. Without this it cannot possibly know whether the Fund is fulfilling its intended purposes, including helping claimants with childcare costs. The Department should publish a quarterly statistical release on the use of the FSF, including breakdowns by purpose of spending and Jobcentre Plus district. It should also set out its detailed strategy for promoting the FSF to Work Coaches, claimants and stakeholders, such as providers.

The Department should also be open to innovative ways of using its resources to help claimants work and minimise the risks they face in doing so. It should trial a childcare deposit scheme, using the FSF to make deposit payments direct to providers. This would not only help parents to work; it would provide a valuable opportunity to “test and learn” on direct payments.

DWP must ensure that childcare is affordable for claimants on an ongoing basis. Most Universal Credit claimants will be able to claim back a greater proportion of their childcare costs under Universal Credit: up to 85%, rather than 70% under Working Tax Credit. This is very welcome. But as things stand some 100,000 households will receive less under Universal Credit than they would have under the legacy system. This includes households who are among the poorest Universal Credit claimants. And for many claimants, the costs they are able to claim back will fall short: the maximum amounts that the Department will reimburse for childcare have not increased since 2005. To ensure work always pays for Universal Credit claimants, the Department has a choice: it can increase the maximum reimbursements, or it can increase the maximum caps. The Department should model the effects of both on work incentives and implement the option that will have the greatest impact.

It is unacceptable that households claiming Universal Credit—amongst them the poorest in society—are struggling with childcare costs while the Government is funding support for households earning up to £200,000 per year via the Tax Free Childcare and 30 free hours schemes. The Government should divert funding from those schemes towards improving Universal Credit childcare support.

Parents and carers who want to claim support with childcare face a series of confusing decisions. They have to choose from up to seven different schemes, each with different qualifying conditions and interactions. Personalised, good quality advice on their options is vital: not just at the start of a claim, but throughout as their circumstances change. Yet the Government’s online Childcare Calculator tool does not include Universal Credit, and directs claimants wanting to understand the relative benefits of that scheme instead to third-party calculators and support services. The Government should update the Childcare Calculator to fully calculate Universal Credit entitlement as it currently does for tax credits. And the Department should recognise that some claimants need more in-depth advice on childcare options than Work Coaches can reasonably be expected to deliver. It should engage with Citizens Advice—its Universal Support delivery partner—to establish how this advice can be included and funded through Universal Support.

Childcare can do so much more than simply enabling parents and carers to work. Good quality childcare helps children to flourish in their early years and enhances their education and development in later life. And the Department argues that growing up in workless households is damaging children’s life chances. That means the case for ensuring that childcare is never a barrier to work is not just economic. It is also about ensuring that children—including those from some of the most disadvantaged households in the country—are able to get the best possible start in life and formal education. Without significant changes, childcare support for Universal Credit claimants will work against both that goal, and the objectives of Universal Credit itself.

Published: 23 December 2018