Warning over impact of Universal Credit on early years provider funding

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Self-employed childcare providers could miss out on Universal Credit as a result of receiving early years entitlement funding, the Early Years Alliance has warned.


Early years providers registered as self-employed or sole traders, including childminders, who receive Universal Credit could miss out on payments as a result of receiving funding for providing 15- or 30-hour childcare.

Under current rules, the Department for Work and Pensions does not make a distinction between income from parent fees, spread across the year, and larger funding payments, which may be made on a termly basis, when assessing eligibility for Universal Credit payments.

The issue was first brought to the Alliance’s attention by the owner of a pre-school in Hampshire.

William Towgood, the owner of Bishopstoke Pre-school in Eastleigh, receives government funding three times a year.

As he was then registered as a sole trader, in each month he received a payment for funded places, he would lose Universal Credit for that month.

He has now registered his pre-school as a limited company, meaning that he is now treated as an employee, and so funding income is treated as separate business income.

Mr Towgood said, 'Small settings where owners are in receipt of Universal Credit can see their payments stopped when the government funding is paid into their business account.

‘Universal Credit adds to the stress to sole traders in the early years, on top of frozen funding, pension contributions, minimum wage and rising costs.’

The DWP has now provided a full response to the Alliance to clarify the issue, which they originally raised last year.

The DWP has not indicated that it has any plans to review the way the Universal Credit applies to self-employed providers who receive government funding.

Commenting, Neil Leitch, chief executive of the Early Years Alliance, said, ‘This is a truly ridiculous situation: the Government is well aware that termly funding has to pay for the provision of care and education across the whole term. Why on earth, then, is the DWP treating such payments as if they are personal income that might be spent in full within the month?

‘At a time when so many providers are struggling to stay afloat as a result of government underfunding, the prospect of some being financially disadvantaged even further as the result of the DWP’s inflexible approach to Universal Credit payments is incredibly concerning.

‘The fact that it is the combination of two government policies that is causing this issue just adds insult to injury. It’s vital that the DWP and DfE [Department for Education] work together to review this situation as a matter of urgency and ensure that no provider is left out of pocket as a result of these two schemes.’

The Government has been asked for a comment.

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