Recommendation 3

HM Government Acknowledged

The Department works closely with other government departments, especially with DfE to look at ways to support parents back in to work and progress in work. An example of this is where we have delivered, in partnership with DfE and HMRC, the Childcare Choices campaign that aims to increase parents’ awareness of the wider government childcare offers. Further support from the DfE Budget announcements By September 2025, eligible working parents of children aged 9 months to when they start school will be able to access 30 hours of free childcare in England. The UC childcare element can be used to top up a claimant’s eligible free childcare hours if more hours are worked and childcare required, including paying for the additional hours of wraparound childcare created as a result of the DfE’s wraparound pathfinder programme which aims to support local areas and schools to start up and increase availability of wraparound from Sept 2024 with a view to sustainable wraparound being offered by most schools by Sept 2026. Universal Credit – reflecting the world of work providers. In addition to that report, in 2011 when UC was being designed, direct payments was considered and stakeholders who represented the interests of recipients of childcare advocated the preference that there should be no direct system of payment to childcare providers and wanted payment to go to recipients of UC. It is important to remind the Committee of the original aims of UC and work. UC was originally designed to reflect the world of work and paid as a lump sum monthly. Whilst UC is made up of elements according to household circumstances, it was designed to be more like a salary. The aim was for households to make their decisions in the same way as those in working households who were not on benefits, including decisions on things such as hours of work, spending, childcare etc. In this way this type of benefit was designed Universal Credit and childcare costs: Government Response 5 to reduce or remove any ‘culture shock’ for people moving into work and eventually off benefits. The original intention was also to eliminate some of the incentive issues with legacy benefits which led to claimants being caught up in a ‘benefit trap.’ Paying directly to childcare providers would undermine the fundamental aspect of the design of UC. Alternative Payment Arrangement model comparisons in a manner comparable to Alternative Payment Arrangements (APA), the fluctuations in the childcare costs, seasonal and otherwise, would make this impossible to do with any consistency, and would require the childcare element to be paid on estimates because payments would have to be made upfront. This would ultimately risk the claimant being overpaid and potentially get into debt. APAs are for vulnerable UC claimants who cannot manage their single monthly payment and there is a risk of financial harm to the claimant and/or their family. APAs are a discretionary decision based on a best interest test and only applied when a claimant is unable to manage their single monthly payment. Housing costs are verified in advance of any APA being paid. The value of a managed payment to a landlord is either the value of the housing element or the value of the residual award if lower. If a claimant already had a managed payment of housing costs or the residual UC award is lower than the childcare element, there may well be insufficient UC to also pay a childcare element to a provider. The Assessment Period (AP) for UC runs from the effective date of claim and each subsequent AP will begin on the same date of the month. The award under this approach will therefore reflect the claimant’s circumstances at the point of payment and will better anticipate their needs over the forthcoming month—the period for which we would expect them to use this money to budget and pay for living expenses. This balances the requirement that UC be a benefit paid in arrears with the need to reflect as accurately as possible the circumstances a claimant will be in for the month ahead.