Universal Credit parents 'in debt' over upfront childcare costs

The work and pensions committee report says that ‘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.’

Under Universal Credit, parents have to pay the costs of childcare themselves and submit receipts for reimbursement – which they won’t receive until their next monthly payment, after the childcare has been provided.

Save the Children’s Steven McIntosh said that these large upfront costs can be up to £1,000 when taking into account deposit and advance payments.  ‘The idea that families who have spent time out of the workforce have £1,000 lying around to pay those costs up front is patently absurd,’ he said.

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The committee’s report, into the impact of Universal Credit on childcare costs, said ‘Citizens Advice’s frontline advisers reported seeing UC claimants “running up arrears, going into debt, and—in extreme cases—losing both their child’s place in a setting and, subsequently, their job”. Claimants told us that they had got into debt through paying for childcare. Save the Children told us that they had seen parents turn down job offers because “they are simply terrified about getting into debt”.’

It has recommended that the Government should pay the costs of childcare directly to providers as they do under Tax-Free Childcare, where parents pay into an online account which is then topped up by the Government.

Mr McIntosh said it was a ‘perversity’ that Tax-Free Childcare, which is aimed at wealthier families, ‘provides a gentler process for those families’ than Universal Credit because it helps them ‘not to have cash flow problems from upfront costs'.

The committee heard that the government had switched to upfront payments because of ‘high levels of fraud and error inherent in the tax credits system’ which preceded it.

Other recommendations

Other sources of finance are available for parents struggling with the costs of childcare, but the committee said that jobcentres weren’t good at telling claimants about them. It found that a Flexible Support Fund, which provides grants to help claimants with such costs, had not effectively been promoted by work coaches. Furthermore it appeared to have been underspent every year since 2012/13.  

Another option, Budgeting Advances, were interest-free loans and unsuitable for claimants ‘already struggling with ongoing costs’, the committee said.  It recommended that the DWP should amend its guidance to job centres and Universal Credit staff and set out a strategy on promoting the use of the Flexible Support Fund.

The committee also considered 30-hour top-up costs for items such as consumables, which can’t be reimbursed by Universal Credit. To help meet these costs, the committee recommended that the government review the maximum caps on childcare costs (the maximum amount per month that can be reimbursed under Universal Credit, currently £646.35 per child per month, is based on 2005 costs). They also recommended the government carry out its own modelling of the impact of increasing the proportion of childcare costs reimbursed – currently 85 per cent - to 100 per cent.

In August 2018, 15,900 households on Universal Credit were claiming help with childcare, around 4.5 per cent of UC households entitled to the child element of Universal Credit.