Universal Credit families denied help with 'sky high' upfront childcare fees

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Childcare debt is set to soar under Universal Credit as claimant families are denied help to afford upfront nursery fees, a charity has warned.

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Save the Children warns that under universal credit, families risk getting into childcare debt with upfront nursery fees

  • Families on Universal Credit having to pay ‘sky high’ childcare fees upfront
  • Claimants have to wait at least a month to be reimbursed
  • Upfront childcare costs are pushing Universal Credit families into debt or forcing them to turn down work.

Unlike the current benefits system, low-income families on Universal Credit will not be able to claim money in advance for childcare bills, forcing them to pay the deposit, which in some cases could be £1,000, before waiting a month to be reimbursed, according to new analysis by Save the Children.

The charity warns that this will force families into childcare debt or block them from going back to work unless the Government makes urgent changes.

It refers to Department for Work and Pensions research showing half of low-income families have no savings. Save the Children says these families will be ‘forced hundreds of pounds into the red’ just to afford the childcare they need to start work.

The same concerns were flagged by the Treasury Committee in its childcare report. However, in its response, the Department for Education said it recognised it could prove difficult for claimants to find the money, but provided no solution or suggestion that it would look into the matter.

Save the Children’s analysis reveals the ‘overspend’ of different family types in receipt of Universal Credit when forced to pay childcare fees upfront:

  • £780 for a single mum with a one-year-old starting a full-time job (40 hours) on the minimum wage.
  • £460 for a single mum with a one-year-old starting a part-time job (25 hours) on the minimum wage.
  • £580 for a family of a one-year-old and a three-year-old, where one partner is already working full-time on minimum wage, and the other partner is returning to full-time work.

The estimated overspend figures are based on data from the Office of National Statistics’ (ONS) Living Costs and Food Survey 2016/17 and Save the Children’s modelling of family incomes, including take home pay, child benefit and Universal Credit entitlements. All working adults are assumed to earn the national living wage.

Also included within the analysis are estimates of the upfront costs for the first month of childcare for children aged one to four, taking up a part-time or full-time place (see table below). The figures are taken from the Family and Childcare Trust’s Childcare Survey 2018. Upfront costs are calculated as one month’s fee plus £150 deposit, except where families only use their free entitlement, in which case no deposit is payable.

However, costs vary depending on region. The highest cost for a full-time place for a one-year-old is in London at £1,423, while the lowest is in the north west at £856.

 table

Save the Children warns that these costs risk tipping working families over the ‘financial precipice’ as many low-income families already face problems with debt.

The charity is now calling for parents on Universal Credit to get immediate help to pay upfront childcare costs, echoing how the Government supports ‘better off’ families through Tax-Free Childcare.

CASE STUDY

Office worker Louise from Southport recently returned to work after maternity leave. She received her first Universal Credit payment after six weeks, but her second payment didn’t come through, without any warning or explanation. After paying upfront childcare costs, she and her partner went over their overdraft limit and direct debits for bills and utilities bounced. The family has gone into council tax arrears and is on its final notice.

She said, ‘You end up paying out the most important things – rent and nursery. Then towards the end of the month there’s nothing left for anything else. We literally had nothing during this time and all our direct debits bounced which caused extra charges to us from our bank.’

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Steven McIntosh, director of UK policy, advocacy and campaigns at Save the Children, said, ‘Parents are trapped between going into debt to afford childcare and turning down work because they can’t risk household direct debits bouncing. This defeats the point of Universal Credit.

‘Childcare support should help parents find work and improve children’s chances in life. Instead of making it harder to get into work, the Government must switch to providing upfront help with childcare costs.

‘Childcare costs should never create an ‘emergency’ for family finances.

‘It will strike many as deeply unfair that poorer families struggling to improve their earnings face bigger hurdles getting the support they’re entitled to than better off families.

‘Eventually, 500,000 families across the UK will receive childcare support through Universal Credit. With 90 per cent of the universal credit roll out still to come, it’s vital the Government takes urgent steps now before the number of families in trouble starts to snowball.’

A Government spokesperson said, ‘This Government is doing more than ever before to support parents with the cost of childcare and by 2019-20 we will be spending around a record £6 billion on childcare support.

‘Under Universal Credit, working parents can claim back up to 85 per cent of eligible childcare costs - higher than under the previous system and worth up to £1,108 per month for someone with two or more children. And if someone has accepted an offer of paid work, they are eligible to be paid these costs for the month prior to starting work.’

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA) said, 'We welcome the findings and recommendations in the Save the Children’s report. All parents especially those with low incomes should receive help with their childcare costs, but these should be realistic and not leave nurseries out of pocket.

'Children from disadvantaged backgrounds – including those whose parents are entitled to universal credit – are those in most need of high quality childcare and early education that nurseries can provide. This will give them the best start in life and help reduce the inequality gap between them and their peers.

'NDNA’s proposed Childcare Passport would help parents and providers by streaming all funding into one simple online account so the parents don’t have to struggle with upfront payments and nurseries don’t suffer from late payments from local authorities.'

  • Save the Children's analysis is here
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