Universal Credit: childcare: Government Response to the Committee’s Twenty-Second Report Contents

Appendix: Government Response

1.The Government welcomes the Twenty-Second Report of Session 2017–19, following the Committee’s ongoing inquiry into Universal Credit and childcare.

2.The Committee published its report on 23rd December 2018, which included nine helpful recommendations for the Government to consider.

3.The Government has carefully read the Committee’s report and noted the recommendations and points raised and has listened to the concerns expressed by parents and other key stakeholders including Save the Children and the Centre for Social Justice. The Government has set out its response to each of the Committee’s recommendations in the section below.

4.The Government recognises that high childcare costs can be a real barrier to parents taking up employment or increasing their working hours. To help overcome this, Universal Credit is more generous than legacy benefits in the support it provides towards childcare costs with an increased level of support for childcare costs from 70% in legacy to up to 85% in Universal Credit.

5.The Government now provides more support than ever before to help parents with the costs of childcare. The wider childcare offer includes Tax Free Childcare, which allows parents to save up to £2000 per child each year on childcare, and the provision of free hours of childcare. The free childcare offers include providing 15 hours a week of free childcare in England for all 3 and 4 year olds and disadvantaged 2 year olds, and doubling free childcare available for working parents of 3 and 4 year olds to 30 hours a week.

6.The Government was particularly concerned about the financial difficulty caused for some claimants in meeting upfront childcare costs highlighted in the Committee’s report.

7.To help remove the barrier caused by upfront costs, the Secretary of State announced in her speech of 11 January 2019 that, where the initial month’s childcare costs may prevent a claimant from starting work, jobcentres have been instructed to use the Flexible Support Fund to support the transition into work. Furthermore, when parents have good reason for not reporting their childcare costs immediately, the Department will be more flexible to enable parents to be reimbursed at a later point.

8.Changes have already been made to the Flexible Support Fund guidance to align it more closely with Universal Credit. The changes include the removal of the 16 hours employment restriction to enable claimants starting work of less than 16 hours to get help with upfront childcare costs and raising the age of dependent children to 16.

9.Other progress to date includes the introduction of a digital upload for receipts of paid childcare costs to remove the burden on claimants as they previously had to provide these in person.

10.Significant work is being undertaken within the Department for Work and Pensions to increase work coaches understanding and promotion of both the UC childcare offer and the wider Government childcare offer.

11.The childcare infographic, a newly developed visual aid setting out the different Government childcare schemes is being made available to work coaches in Jobcentres. Roadshows and internal staff conference calls have helped to raise awareness and share information about the guidance changes amongst work coaches and we are providing guidance to enable greater flexibilities in terms of late reporting and reimbursement of UC childcare costs.

12.These changes illustrate the progress the Government is making to make childcare less of a burden for working families and to smooth the transition from welfare benefits into work. More needs to be done and the Department for Work and Pensions continues to work closely with other Government Departments to ensure Childcare schemes complement each other to deliver effective support for working families.

Recommendation 1

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).

13.The Flexible Support Fund can be used to support paying childcare deposits and upfront costs. Where this is used, the payments will be paid directly to the childcare provider.

14.The inclusion of childcare costs where they are incurred as part of the total Universal Credit award paid to a claimant is integral to determining entitlement and there are no plans to pay this separately to childcare providers.

Recommendation 2

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).

15.We agree with the Committee that claimants requiring help with upfront childcare costs and deposits should be directed to the Flexible Support Fund in the first instance and the Department has recently changed guidance to Work Coaches and Universal Credit staff to make this clear.

16.Budgeting advances remain an appropriate means of helping claimants with upfront childcare costs and deposits they may incur when they are in work. A claimant in receipt of Universal Credit and in work can access a budgeting advance (providing they do not already have an outstanding one) to cover the cost of paying upfront childcare costs or a deposit which will then be reimbursed when they later submit a receipt.

Recommendation 3

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 and development taken on by Work Coaches and other JCP staff and managers. (Paragraph 33).

17.We agree with the Committee that the Flexible Support Fund needs to be widely promoted. The Department has very recently increased promotion of the Flexible Support Fund to help with upfront childcare costs through internal campaigns and this is set to continue with further activity being planned. Our Employer & Partnership community, both at regional and national level, will continue to promote the use of Flexible Support Fund through our external agenda. We are considering what more can be done.

18.We have updated Flexible Support Fund guidance to encourage the use of the Fund in Universal Credit to pay for upfront childcare costs where this may be a barrier to starting employment. In legacy benefits, claimants have to work at least 16 hours a week to qualify for this support. We have removed the minimum number of hours requirement for Universal Credit claimants so that if a Universal Credit claimant is starting work of less than 16 hours they can utilise the Flexible Support Fund for upfront childcare costs.

19.We will undertake regular internal reviews to ensure colleagues nationally are maximising the benefits that the fund can bring to our customer base. In addition, we will internally review our operational policy to ensure we capitalise on the opportunities that Flexible Support Fund affords us to support individual customers in moving them into sustainable, quality employment.

Recommendation 4

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).

20.The Flexible Support Fund is a discretionary fund which is utilised to meet individual and local labour market needs and as such the Department does not want to introduce unnecessary administration on operational staff which may deter the use of this fund. We do not publish financial data as we do not wish to detract from the discretionary nature of this fund.

21.We continually monitor spend internally and review our processes. As part of this, we will be monitoring Childcare expenditure within the Flexible Support Fund following the recent policy changes removing the 16 hours’ threshold for Universal Credit claims only. Where there is a need for change we will consider amendments and improvements to the Flexible Support Fund policy and process.

Recommendation 5

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)

22.The Flexible Support Fund can provide help with paying childcare deposits and the payments are always paid directly to the childcare provider. We therefore do not see the need to carry out an additional trial using the Flexible Support Fund in this case.

Recommendation 6

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).

23.The Government notes the Committee’s recommendations. Universal Credit provides more generous childcare support than is available under Tax Credits increasing from 70% to up to 85% and with more generous limits. An increase to 100% would require very careful considersation as it could result in an increased hourly rate of childcare provision for parents in the wider market.

24.Currently under Universal Credit, working families who claim up to the 85% reimbursement limit can claim up to a maximum of £646.35 for one child and £1,108.04 for two or more children. This can be claimed up to a month before starting a job. For families with two children this could be worth up to £13,000 a year.

25.The data structure of childcare expenditure information is complex and will require significant quality assurance. We estimate it will be possible to provide further analysis on the UC childcare cost caps in a statistical ad-hoc publication in summer 2019, subject to managing other demands for analysis and in line with other priorities such as our work moving legacy claimants onto UC.

Recommendation 7

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).

26.The Government notes the Committee’s recommendations. The Government will be spending around £6 billion on childcare support in 2019–20 – a record amount. That will include funding for free early education entitlements, on which the plan is to spend around £3.5 billion this year alone. We believe that helping parents with their childcare costs is one of the best ways to help people into work, support families with the cost of living, and ensure every child has the opportunity of a high quality early education.

27.The current childcare offer is comprehensive, broad ranging and reflects different family circumstances, covering children over a range of ages. Tax Free Childcare allows parents to save up to £2000 per child each year on childcare. Universal Credit supports families with up to 85% of their childcare costs. Finally the early years entitlements provide 15 hours of free childcare a week for all three- and four-year-olds, worth around £2,500 a year on average, helping them develop social skills and preparing them for school. 15 hours of free childcare a week is available for disadvantaged two-year olds and an additional 15 hours of free childcare a week for working parents of three- and four-year-olds. The 30 hours offer saves parents using the full entitlement up to £5,000 a year. Each parent, or a lone parent, can access 30 hours of free childcare if they earn from £6,500 a year. Some entitlements can be used in conjunction with each other, based on individual circumstances.

28.The childcarechoices.gov.uk. website provides an easy look up tool so parents can identify what they may be eligible for as well as offering support and advice about how to apply.

29.The Department continues to work across Government to support take up of the different offers, and ensure we have accessible information for parents supporting their ability to take up support.

Recommendation 8

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)

30.Universal Credit Childcare costs are intrinsically linked to the total Universal Credit award and are impacted by earnings and taper elements. The issue is too complex to include this functionality in the calculator to enable Universal Credit entitlement to be calculated and there are currently no plans to make this change.

31.We will work closely with Gov.uk to improve the information on Universal Credit and the different childcare offers available to parents. The Department will continue to work closely with other government departments on communicating the different childcare offers available to parents, providers and employers, including via digital channels.

Recommendation 9

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)

32.We agree with the Committee’s recommendation. The Help to Claim service is the new offer of support which replaces Universal Support. This will be run by Citizens Advice and Citizens Advice Scotland. It goes further than offer assisted digital and personal budgeting support and supports claimants to make a Universal Credit claim through to their first full payment. The service will include helping people to get appropriate evidence of their childcare costs, information about how childcare payments under Universal Credit operate and making people aware of the availability of additional financial support where appropriate.

Published: 11 April 2019