Universal Credit: childcare Contents


1.Universal Credit (UC) is a radical departure from the existing welfare system. It replaces six pre-existing means-tested benefits and tax credits (income-based Jobseekers Allowance, income-based Employment and Support allowance, Income Support, Housing Benefit, Working Tax Credit and Child Tax Credit) with one single monthly payment for claimants. A key aim of this new system is to simplify the existing welfare system (the “legacy system”). Through Universal Credit the Department for Work and Pensions (DWP/the Department) hopes to create clearer incentives for claimants to either move into paid employment or increase their working hours.

2.The Department estimates that an additional 200,000 people will move into work under Universal Credit, relative to the legacy system, because of improved financial incentives, a simpler system, and more demanding conditions attached to claimants’ receipt of benefits.1 It also estimates that claimants in work will work an additional 113 million hours each year. Working mothers will account for 95% of these additional hours,2 with lone mothers contributing an additional 78 million hours alone.3 Citizens Advice told us that the availability of good quality, convenient and affordable childcare will be crucial in determining whether the Department achieves these objectives. They explained that parents’ and carers’ decisions on work require them to “weigh the benefits of any additional hours of work against the cost and logistics of increased use of childcare”. Accordingly, Citizens Advice told us that “it is vital that [UC’s] systems support parents to find and sustain appropriate childcare”.4

3.Claimants with children can claim help with their childcare costs via Universal Credit, as they could under the legacy system. The Department told us that, as of August 2018, there were 15,900 households claiming help with childcare. This represents around 4.5% of claimant households whose award includes a component for children.5 The low numbers currently claiming childcare support reflect the composition of the existing UC caseload. In August 2018, 59% of UC claims were paid to single people without children and a further 3% to couples without children.6 As the Department makes progress with rolling out Universal Credit and moving claimants from the legacy system to UC (which it refers to an “managed migration”), the number of households with children will increase.7 When UC is fully rolled out the Department estimates that 12.5% of UC claimants who are entitled to childcare support will claim it.8

4.We held this phase of our ongoing inquiry into UC in response to evidence of claimants’ difficulties in finding and accessing affordable and good quality childcare. We aimed to understand the extent to which childcare presents a barrier to work under UC and how the barriers could be broken down. In the text our conclusions are in bold and our recommendations in bold italic.

Childcare as a barrier to work

5.Finding appropriate and affordable childcare can be a barrier to returning to work. Research by the Department for Education (DfE) reported that 50% of non-working mothers said that if they could arrange “good quality childcare which was convenient, reliable and affordable”, they would prefer to go to work.9 A third (33%) of mothers working part-time said they would increase their hours if there were no barriers to them doing so. A further 13% said they would work full-time.10 Half (50%) of mothers working part-time reported that being able to afford suitable childcare was the main factor that would enable them to increase their working hours.11 Witnesses to our inquiry illustrated starkly the effect that being able or unable to afford childcare alongside other living expenses can have on people’s ability to work. Thuto Mali, a parent from London with a young son, told us that she had to turn down a job because it would have been unaffordable (see Case Study 1):12

On a salary of £32,000, we would not be entitled to any Universal Credit, any housing benefit or any help. Having paid our rent, council tax and £1,500 per month for full-time childcare, plus the £500 deposit on top, we would be left with £60 for the entire month for all our bills. That is effectively £2 a day. Unfortunately, I was not able to take the job because it just did not work. Work did not pay for us. [ … ] We were at the foodbank last Christmas because it got that bad. It is not that I do not want to work; it is just that work does not pay in this situation.

Case study 1: Thuto

Thuto is a single mum to a 2-year-old son, from London. She is currently receiving legacy benefits, but as Universal Credit is being rolled out in her area, she will be moving onto it in the coming months. Her son has just started attending nursery for 15 hours a week under the free entitlement from the Department for Education.

Thuto is extremely concerned about how she will manage once she secures a job and starts receiving childcare support through Universal Credit. She is anxious about how she will cover the upfront costs and worries that she will be worse off when working. She says:

When I did a better off calculation, now Universal Credit is active in my area, we will be significantly worse off once I start working. Even on a salary of £32,000 a year, after paying our rent, council tax and childcare, we are left with just £66.88 per month for all other bills, food and all other essentials. That’s just over £2 per day. We are no stranger to food banks. All because I want to return to work and he needs and deserves to go to nursery like his peers and counterparts.

Source: <Save the Children and Q881 (Thuto Mali)>

6.We heard that a lack of affordable childcare can increase the likelihood of children growing up in poverty and affect their life chances. The Department’s 2017 research on workless families found that “worklessness and the complex problems associated with it hold people back and prevent them from reaching their potential”. It continued:13

We cannot afford not to act: the issues faced by children in workless families–of which there are 1.8 million across the UK–combine to impact upon their development and education, limiting their future employment prospects, and reducing their opportunities to succeed throughout their lives.

7.Witnesses to our inquiry echoed the Department’s view. The Centre for Social Justice, a think-tank, told us that being in high quality childcare, in itself, can be an important positive influence on children’s development.14 Save the Children said that high quality childcare can enable children to “flourish” in their early years.15 The Centre for Social Justice also told us that access to affordable childcare also gives parents the choice to work.16 This potentially offers the opportunity to boost their family income, although Save the Children cautioned that work is “no longer a guaranteed route out of poverty”.17 Finally, we heard about the impact on children’s later life chances. The Centre for Social Justice told us that:18

Children in workless families [ … ] are almost twice as likely as those in working households to fall behind at every stage in their education. They are also more likely to experience worklessness themselves as adults, thereby fuelling intergenerational disadvantage. And the potential for suitable work to improve physical and mental wellbeing is well established.

8.The Department aspires for 200,000 additional people to work under Universal Credit, relative to the system it replaces. It also aims for claimants already in work to contribute over 100 million additional working hours each year. Working mothers will do the heavy lifting, with lone mothers contributing almost 80 million hours alone. But parents and carers who cannot afford childcare are also likely to find that work, or working more, simply does not pay. Making childcare payments work is critical to the success of Universal Credit.

9.Good quality childcare can help children to flourish in their early years and enhance their education and development in later life. And the Department argues that growing up in workless households is damaging children’s life chances. Household decisions on work are closely tied to the availability of affordable, accessible childcare. 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 get the best possible start in life.

3 The Department estimates that lone mothers will work an additional 78 million hours, women in couples with children 29 million hours, and single women without children six million hours.

4 Citizens Advice (UCR0268)

7 Social Security Advisory Committee (SSAC), The Draft Universal Credit (Managed Migration) Regulations 2018, November 2018

12 Q881 (Thuto Mali)

14 Centre for Social Justice (UCR0266)

15 Save the Children (UCR0257)

16 Centre for Social Justice (UCR0266). See also Citizens Advice (UCR0268), Save the Children (UCR0257)

17 Save the Children (UCR0257)

18 Centre for Social Justice (UCR0266). See also CPAG (UCR0202)

Published: 23 December 2018