The government's Universal Credit childcare scheme is leaving a number of parents "worse off" according to a new report. New research by the Institute for Policy Research (IPR) has found that the government's Universal Credit childcare scheme, which offers parents the option to cover up to 85% of childcare costs, is leaving some severely "out of pocket". Under the scheme, low-income families claiming the benefit can pay for childcare upfront and reclaim costs each month through an online system. The maximum amount you can claim each month is £1,014.63 for one child or £1,739.37 for two or more children. You can claim help with childcare costs for any children under 16 who you are responsible for.
However, the report - which was funded by abrdn Financial Fairness Trust - finds that the way the system works sees parents having to wait long periods for their costs to be reimbursed. Alongside this, the contribution they get is also means-tested against monthly earnings, so the amount they are reimbursed can vary month to month, making it difficult to budget. In addition to the problems with the Universal Credit claim-back system, researchers found that working parents facing additional pressure from the Department for Work and Pensions (DWP) to increase their hours felt it could undo work-care arrangements that they have struggled to achieve. Based on interviews, the study found that insufficient free hours, added provider fees, and a lack of after-school and limited holiday club options leave many families struggling to balance work and care.
One parent in the study shared that they had to pay for a complete six-week term of after school club costs, but would only be reimbursed for the amount of childcare used in each Universal Credit assessment period. This meant that she had to wait two months until she received any reimbursement towards the last two weeks of the payment. Shift work could also compound problems for parents who might end up paying for additional hours of childcare beyond those that they actually worked. For example, if the shifts they were offered by employers straddled morning and afternoon nursery sessions, this could result in them paying for double the amount of nursery hours they were actually working.
Although Universal Credit usually allows claimants to reclaim these costs, the reimbursement shortfall and delays can still leave claimants struggling. The report urges the government to overhaul the system to make sure parents on Universal Credit are fully compensated for their childcare costs - so at 100% - and that the system moves towards more supply-side funding directly to the provider for working parents on Universal Credit.
The report said that this would let parents to take on more hours, offer their employers flexibility and remove uncertainty about whether working more hours will actually pay after childcare costs are taken into account. Dr Rita Griffiths, a Research Fellow at the IPR, said: “Current childcare policies are forcing families to make impossible choices between work and care. These reforms are essential to prevent families from being trapped by high childcare costs and bureaucracy while ensuring every child has access to quality early years education.”.
Dr Marsha Wood, a Research Associate at the IPR, added: "The government has also promised to 'make work pay' through its New Deal for working people and increases in the National Minimum Wage. Ensuring these goals are met for low-income families will depend on the availability of affordable, quality childcare that can meet the diverse needs of all children. Some of the ways they could do this include fully subsidising preschool childcare for working parents on UC and expanding free childcare support to include clubs not Ofsted-registered, such as sports or drama clubs, providing more flexible, affordable options for low-income working parents.”.
In response to the report, a government spokesperson said: "Good childcare is vital to both children and to hard working parents and we will continue to ensure families get the support they need. Parents receiving Universal Credit can already have up to 85% of their childcare costs reimbursed every month, and we urge anyone who needs assistance accessing this support to speak to their work coach.”.
