Universal Credit forcing low-income families into 'childcare debt'

By agency reporter
June 22, 2018

The switch to Universal Credit – the Government’s flagship welfare reform programme – is hitting parents with upfront childcare bills that have reached £1,000, new analysis from Save the Children reveals. The charity has warned that this will force families into ‘childcare debt’ or block them from going back to work unless the government makes urgent changes.

Childcare support under Universal Credit scraps the help low-income families currently claim in advance for childcare bills – forcing parents to pay sky-high fees upfront. They then face waiting at least a month to be reimbursed.

Half of low income families have no savings. These families will be forced hundreds of pounds into the red just to afford the childcare they need to start work. Today’s analysis reveals the scale of this hole in family finances in England, once they have bought household essential:

  • £780 – the overspend by a single mother with a one year old, starting a full time job on minimum wage
  • £460 – the overspend by a single mother with a one year old, starting a part time job on minimum wage
  • £580 – the overspend by a family with 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

Steven McIntosh, Save the Children Director of UK Policy, Advocacy and Campaigns 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.”

Universal Credit brings together six means-tested benefits together into a single, monthly payment for low-income households. The Government’s roll out has so far reached around 10 per cent of the people who will eventually be eligible. Under the existing benefits system, parents can make a claim for help with childcare costs in advance of paying nursery bills. 

Save the Children says that the way childcare support is paid under Universal Credit is unfair to lower paid families. The Government’s tax-free childcare scheme pays higher income families £2 for every £8 they spend on childcare. Unlike the support in Universal Credit, this help with costs is provided upfront, reducing the pressure of childcare bills for these better-off parents.

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 and direct debits for mobile phone bills, water, and gas and electricity bounced. Fees for these reached £60 in one month. They have gone into council tax arrears and are on their final notice.

Louise 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.”

Regional variations have also been revealed. The highest cost for a one-year old to start full time childcare is found in London, at £1,423. The lowest is in the North West, where the equivalent fee is £856.

These costs risks tipping working families over the financial precipice. A quarter of lowest income families already face problem debt. A third owe more than the value of their assets.

Save the Children is 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.

The Government claims that ‘budgeting advances’ will help. But they are designed to cover ‘emergency and one-off expenses’. A family can only have one at a time and half of all families on Universal Credit already have one, leaving them with nowhere to turn. For the rest, taking out a budget advance means putting your family in debt in order to pay these costs, and then leaves you with no option if there is a genuine ‘one off’ or ‘emergency’.

McIntosh continued: “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.”

In March, the Treasury Select Committee inquiry into childcare called upfront costs a ‘fundamental design flaw’ in the childcare element of Universal Credit. In June, the National Audit Office found that one third of childcare support claimants under Universal Credit have not received their childcare payments on time.

* Save the Children https://www.savethechildren.org.uk/

[Ekk/6]

Although the views expressed in this article do not necessarily represent the views of Ekklesia, the article may reflect Ekklesia's values. If you use Ekklesia's news briefings please consider making a donation to sponsor Ekklesia's work here.