Fourth Report - Universal Credit and childcare costs

The Department is currently exceeding its expected proportion of claimants in receipt of childcare support, but it admits that some low-income parents still have difficulty accessing appropriate childcare, for reasons both within and outside its direct control. We recommend the Department commits to producing a quarterly statistical update on the proportion of eligible claimants on UC childcare, and that it commissions research into why take-up is not higher and how it could be improved.

Good quality childcare can have a transformative impact on the lives of children and their families, and a lack of childcare, or support with paying for it, should never be a barrier to work. Childcare is expensive for all, but the pressures are most acute for low-income families and we recommend the Government increase the financial support it provides to them. Additionally, the Department should assess the childcare funding schemes in Scotland and Scandinavian countries, investigating whether their costs are offset by societal benefits such as increased economic activity, additional tax and personal wellbeing. (Paragraph 20) Upfront costs

Households claiming Universal Credit are, by definition, amongst the poorest households in the country, yet the childcare support to them via that system requires them to find substantial sums to meet up-front costs: both initially and on an ongoing basis. Other schemes, such as Tax Free Childcare, allow reimbursement in advance despite being aimed at much wealthier households. The Department must solve this obvious barrier to work. We recommend it work with the DfE and childcare providers to produce a solution to this problem, if necessary by establishing a direct payment system modelled on those used elsewhere, such as Alternative Payment Arrangements for housing, or funded childcare hours. If this cannot be achieved within the Universal Credit system, childcare support should be removed from it entirely and a solution based on a single childcare account, such as that used for Tax Free Childcare, should be implemented.

DWP, entirely reasonably, wants to reduce the amount that it loses to fraud via childcare payments in UC. However, we have heard that in doing so, by making payments in arrears, it has created an insurmountable barrier to work for some households. DWP’s recent efforts to encourage Work Coaches to make greater use of the Flexible Support Fund to address this problem do not seem to be having the desired effect.

We recommend the Government 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 Universal Credit and childcare costs 47 the next month. We note that there has been a substantial underspend in the FSF in every year of its operation to date which would contribute to the cost of this measure.

DWP maintains that it does not collect or publish regular statistical updates on uses of the Flexible Support Fund, on the basis that it does not want to detract from its discretionary nature. The FSF is a core element of support for working parents, and without this data, the Department cannot verify whether it is being used as intended. We appreciate that the Department has sent us data for some recent years on request, but recommend the Department commit to publishing an annual update on Flexible Support Fund spending. (Paragraph 45) Caps and maximum reimbursement

The UC childcare offer is, in some ways, more generous than the system it replaces, as it offers a higher percentage reimbursement. However, 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. This is particularly pertinent given the current rate of inflation and cost of living crisis, which the Government has recognised in uprating benefits, and the benefit cap, in the Autumn Statement. We recommend the Government uprate the childcare cost caps to better reflect the true cost of childcare in 2022 and then index them annually. (Paragraph 60) Understanding support and eligibility

There are a wide range of childcare support schemes available to people claiming Universal Credit, all with different eligibility criteria and application systems. We heard in this inquiry that it continues to be very difficult for parents to understand what the best childcare option for them is, and how this might change with their circumstances.

The Government offers support on childcare options: notably, the Childcare Choices website and via Jobcentre Plus Work Coaches. DWP told us that Work Coaches receive training in advising UC claimants on their childcare options, but our evidence suggests further work is needed. We also heard that currently, UC claimants referring to the Childcare Choices webpage are often directed back to general information on Universal Credit, as the information on the webpage is not sufficient.

Work Coaches already receive training on childcare support for UC claimants, but given the range of schemes available, the way that payments and suitable options can change with a claimants’ circumstances, and the need for timely information, there is a case for introducing specialist Work Coaches in this area. We recommend the Department develop “childcare specialist” Work Coaches, in line with its existing Self-employment and Disability Employment specialist roles. The Department should introduce one in each job centre in the next 6 months.

The range of childcare support schemes available to parents is complex, and they need access to good quality, timely information to make the best decisions about 48 Universal Credit and childcare costs their finances. We recommend the Department for Work and Pensions develop a single portal for childcare on the current Childcare Choices model: crucially, this must include information and calculations on payments for Universal Credit childcare claimants that is integrated with advice on other programmes. (Paragraph 77) Childcare Industry

It is evident that the current system for receiving childcare reimbursements is failing those on Universal Credit, and often leads to further debt and/or compromising circumstances. Variable childcare costs are unfortunately unavoidable due to differing costs during term time and out of term, but the Government and childcare providers can and should do more to protect those receiving UC.

We recommend that the Department for Work and Pensions consult providers on a way that costs can be split evenly for people claiming Universal Credit childcare support.

We heard some evidence on how the Department for Work and Pensions could improve or alter conditions in the childcare industry. But we recognise that much of the responsibility for childcare policy sits outside DWP, in the Department for Education. In particular, we heard evidence on whether childcare ratios for children of different ages should be altered, to improve the availability and affordability of childcare. (Paragraph 94) Universal Credit and childcare costs 49