Universal Credit: childcare Contents

Conclusions and recommendations


1.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. (Paragraph 8)

2.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. (Paragraph 9)

Managing upfront costs

3.The Department quite reasonably wants to reduce scope for fraud and error within childcare support. But the approach it has chosen is in direct conflict with Universal Credit’s wider objectives. Universal Credit claimants have to pay the considerable costs of childcare upfront, and then wait to be reimbursed. These upfront costs for childcare are not only a disincentive to work: for some Universal Credit claimants they will either make working unaffordable, or force them to take on debt in order to do so. The Department has chosen this approach despite alternative options, such as direct payments to be providers, being available. Universal Credit’s system contrasts sharply with Tax Free Childcare, an alternative scheme aimed at better-off parents. Users of that scheme can pay into their accounts before paying for childcare, receive support from Government immediately via a top up, and make payments direct from their account to their provider. (Paragraph 19)

4.We recommend the Department develops Universal Credit’s systems to enable childcare costs to be paid directly to childcare providers. This would alleviate the problem of prohibitive upfront costs, help claimants with budgeting, and give providers themselves much-needed certainty of income. Direct payments would also substantially reduce the risk of fraud and error. (Paragraph 20)

5.The Department says paying costs direct to providers would require changes to Universal Credit’s payment system, which will take some time to make. That does not mean direct payments are not the right thing to do. It does, however, mean that the Department will need to devise an interim solution to help claimants meet their costs and get into work. (Paragraph 21)

6.Budgeting Advances are one of the options that the Department offers to claimants struggling with the costs of childcare. They are not the solution to this problem. The Minister claims that these payments are “not a loan but an advance” of Universal Credit entitlement. This is untrue. Even the Government’s own website is clear that Budgeting Advances are loans that must be repaid. Claimants who are already struggling with ongoing costs should not be expected or encouraged to take on extra loans and debt in order to deal with them. (Paragraph 26)

7.We recommend the Department amend its guidance to Work Coaches and Universal Credit staff to make clear that Budgeting Advances are not an appropriate option for claimants struggling with the day-to-day costs of childcare. The guidance should make clear that claimants struggling with such costs are to be directed to the Flexible Support Fund in the first instance. (Paragraph 27)

8.The Flexible Support Fund helps claimants with costs that prevent them from working, including childcare. It should be invaluable in helping claimants with the upfront costs of childcare. But evidence from the frontline in Jobcentre Plus suggests that it is not well known about by claimants, nor effectively promoted for childcare purposes by Work Coaches. The Department seems to have only a vague understanding of how the Fund is promoted to both its own staff and to stakeholders, including childcare providers. We recommend the Department set out in response to this report its strategy for promoting the use of the Flexible Support Fund to help with upfront childcare costs to Work Coaches, claimants, and other interested parties such as childcare providers. This should include details of any mandatory or optional training or development taken on by Work Coaches and other JCP staff and managers. (Paragraph 33)

9.The Department relies on the Flexible Support Fund to help claimants with a multitude of barriers to work. But its limited data shows the Fund has been underspent in every year since 2012–13. Moreover, the proportion spent on childcare is minute. The Department does not consistently gather and publish data on usage of the Fund. It refused, for example, to supply us with any data for 2017–18, a period coinciding with the acceleration of the Universal Credit roll-out. The failure to gather data means the Department cannot verify that the Fund is fulfilling its intended purposes. And it should not expect claimants, or the organisations supporting them, to take on trust that the Fund will meet their needs. We recommend the Department publish a quarterly statistical update on the use of the Flexible Support Fund. This should include breakdowns of both the purposes for which the Fund is used, and differences in spending by Jobcentre Plus district. (Paragraph 34)

10.DWP should be open to using the Flexible Support Fund in innovative ways to help parents to work, and minimising the financial risks those claimants face. We recommend the Department trial a childcare deposit scheme using the Flexible Support Fund. This would involve paying deposits direct to providers from the Fund. The Department should see this as an opportunity to pilot paying costs direct to providers. We therefore recommend it commission and publish an evaluation of the trial that includes lessons learned for further direct payments to childcare providers. (Paragraph 35)

11.Deposits and childcare hours are not the only upfront childcare costs that parents and carers face. There is some evidence of unintended consequences from the Department for Education’s (DfE) 30 hours provision for three and four-year olds. In attempting to offset funding shortfalls, childcare providers are charging for “top ups” such as food or activities, restricting the availability of free hours, or reducing the quality of care. The 30 hours can be claimed alongside Universal Credit—and by households earning up to £200,000. Better-off parents may opt to pay the top-ups or find a provider offering higher quality childcare. But the poorest households could find they have little choice but to accept lower quality, less convenient care; or even that the additional costs are prohibitive. “Top up” costs cannot be reimbursed under Universal Credit or the Flexible Support Fund if claimants are in work. And it is questionable whether DWP should, in the long-term, pick up costs resulting from DfE’s policy. We intend to take further evidence on this issue. (Paragraph 38)


12.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. We recommend the Department:

Review the maximum caps on childcare costs that can be reimbursed under Universal Credit. This should include modelling the effect of higher caps on work participation amongst claimants with children, and introducing a “London weighting” to account for the very high costs of childcare in the capital. The Department should use this work to inform its thinking on whether further regional variations would be appropriate; and

Carry out its own modelling of the costs and effect on work incentives of increasing the maximum reimbursement under Universal Credit from 85% to 100% of allowable costs.

The Department should commit to implementing the approach that will have the greatest impact on work incentives, prior to scaling up “managed migration” in 2020. (Paragraph 46)

13.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. We recommend the Government divert funding from the schemes aimed at wealthier parents (Tax Free Childcare and the 30 hours free childcare) towards Universal Credit childcare. (Paragraph 47)

Complexity and awareness of support

14.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 schemes are split across Departments. Finding someone who can give authoritative and comprehensive guidance can be very difficult. This difficulty is compounded by the fact that the Government’s main tool for helping claimants assess their options—the Childcare Calculator—does not include Universal Credit. We recommend that Government updates the Gov.uk Childcare Calculator to calculate fully Universal Credit entitlement as it currently does for tax credits. This should be operational before the Department starts moving large numbers of claimants to Universal Credit in mid-2020. (Paragraph 52)

15.An online Childcare Calculator will work well for some Universal Credit claimants. But others will struggle to use the Calculator, and even those who manage may have questions or concerns that can only be answered in person. Work Coaches have a role to play in signposting claimants to advice, and the Department must ensure they are given enough time to learn about the new systems they are working with. Given other pressures on them, however, the Department should be aware of their limitations in providing the detailed, comprehensive support on a range of schemes—most of them not run by DWP—that some claimants will need. We recommend that alongside developing the Childcare Calculator, the Department engages with Citizens Advice (its delivery partner for the Universal Support service) about how in-person, expert advice and support on childcare schemes can be included in and funded via Universal Support. (Paragraph 53)

Published: 23 December 2018