Universal Credit childcare costs support acting as barrier to work, MPs warn

The report from the Work and Pensions Committee highlights how many of the problems with the system preventing parents entering work identified by the previous committee in 2018 remain, hindering the Government’s stated ambition to encourage UC claimants to increase their working hours.

• Read the report summary
• Read the full report
• Find all publications related to this inquiry, including oral and written evidence

The UK has one of the most expensive childcare systems in the world and the maximum support available through UC has failed to keep pace with inflation, remaining frozen since 2016. In addition, the cap on total costs eligible for support remains the same as the rate set for Working Tax Credits in 2005, at £760 per month. This now only covers around 27 hours a week, making it hard for people to move beyond part-time work. The Committee calls for the eligible childcare costs cap to be uprated to better reflect the true cost of childcare.

The report also calls on the Government to solve the obvious barrier to work of households having to pay for childcare upfront while UC support is paid in arrears - if necessary by introducing a direct payment system. At present parents have to wait weeks for reimbursement and are often pushed into debt to meet upfront costs. If a solution cannot be found through the UC system, then childcare support should be removed from it entirely, the Committee adds.

The Committee further recommends that there needs to be more guidance available to parents to help them understand different childcare support options, and consultation with providers on how childcare costs can be more evenly spread between term time and out of term.

Rt Hon Sir Stephen Timms MP, Chair of the Work and Pensions Committee, said: “Many parents supported by Universal Credit want to work or work longer to provide for their families but are prisoners to the high cost of childcare and a system that requires upfront payment and the invidious choice of taking on debt or turning down work.

A reassessment of the eligible childcare costs cap is clearly long overdue and a move away from forcing parents to pick up the cost of childcare before receiving benefits is also vital if families are to have access to good quality and affordable childcare. This is key not just to helping parents to increase their hours but also for the transformative impact it can have on the lives of children.

The Government has known about the flaws in the system for years. With the Chancellor reiterating in his Autumn Statement an ambition that Universal Credit should be there to help claimants to take on more work during the cost of living crisis, now must finally be the time for action.”

Main findings and recommendations

Upfront costs

• Childcare support via UC requires families to first meet up-front costs, both initially and on an ongoing basis. DWP and DfE need to work together to overcome this obvious barrier to work, if necessary by establishing a direct payment system modelled on those used elsewhere. If this cannot be achieved within the UC system, then childcare support should be removed from it entirely, with a solution based on a single childcare account implemented.
• The Government should amend the regulations on the use of the Flexible Support Fund so that receipts for payments made from the Fund can be submitted as if the parent had paid the childcare costs themselves. This would have the effect of removing, or largely offsetting the upfront cost, rather than simply pushing it in to the next month.

Caps and maximum reimbursement

• Support for childcare for some of the poorest families in the country has failed to keep pace with inflation because the maximum cap of childcare that can be claimed for has stayed at the same level since 2005.
• The Government should uprate the childcare cost caps to better reflect the true cost of childcare in 2022, and then index them annually.

Understanding support and eligibility

• The wide range of childcare support schemes available to people claiming UC makes it very difficult for parents to understand the best option for them. DWP should develop childcare specialist Jobcentre Plus Work Coaches and a single portal for accessing childcare information.

Childcare industry

• The current system for receiving childcare reimbursements is failing those on UC and often leads to further debt and/or compromising circumstances. DWP should consult with providers on a way to split costs evenly during term time and out of term.