Universal Credit Flaws Inflict Childcare Costs On New Workers

Design flaws in the way universal credit supports families with the cost of childcare are pushing low-income parents hundreds of pounds into debt “just for getting a new job”, according to Save the Children. It added: “These high upfront costs will dissuade many low-income parents from getting a new job and push others into debt. The charity called for a comprehensive redesign of the childcare element of universal credit to mitigate its impact on poorer families before the rollout of the new benefit accelerates.

Parents interviewed by Save the Children said paying upfront caused them stress and forced them to borrow from friends and family to make ends meet. They said the reclaiming process was slow and unreliable, and official support inadequate. The charity cites the case of Louise, a mother of two, who faced an upfront childcare bill for £850 when she returned to work after maternity leave. She described it as a “stressful and unpleasant experience”. The payment in arrears system for poorer families contrasts with the tax-free childcare subsidy for higher income families.

This provides funding up front and the administration is far more flexible and swift - “an inequality between the two systems that urgently needs to be addressed,” the charity said. Although 90% of childcare providers in England require parents to pay monthly fees in advance, half of low income families have no savings, and of those that do, average household nest eggs amount to just £300.

Steven McIntosh, director of UK policy, advocacy and campaigns at Save the Children 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. A government spokesperson said: “Under universal credit, working parents can claim back up to 85% of eligible childcare costs, compared to 70% of costs covered under the previous legacy system. This is the highest level of support ever. And if someone has accepted an offer of paid work, they are eligible to be paid these costs for the month prior to starting work.

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Cash-strapped councils are being forced to set aside extra resources to cushion the blow of switching to universal credit for vulnerable households, according to analysis by Labour. Responses to a series of freedom of information requests submitted by the party have revealed many local authorities are allocating significant funds to support tenants with rent arrears and provide advice to help them navigate the new system. Margaret Greenwood, the shadow minister for employment, said: “Universal credit is causing misery and hardship for thousands of families this Christmas and councils are being expected to pick up the pieces.

Newcastle city council reported that it was spending £390,000 supporting UC claimants, almost a quarter of which was for additional rent arrears support. In total, 26 councils said they had set aside extra resources or anticipated increased demand for welfare support as the UC rollout reaches their area. Universal credit, which is being implemented gradually across the country, bundles together six different benefits into a single monthly payment and is intended to sharpen work incentives.

MPs and charities have raised concerns about the long initial wait for payments and the fact that benefits cuts instigated by George Osborne mean the new system is considerably less generous than the one it replaces. When Labour convened an opposition day debate on the rollout of UC in October, the government ordered its MPs not to vote rather than risk a backbench rebellion.

The monthly payments, and the fact claimants receive the money directly, unlike the current system of housing benefit which is paid directly to landlords, are meant to reflect the world of work and help claimants learn to manage their budget. But after pressure from Tory MPs concerned about the impact on their constituents, the chancellor, Philip Hammond, announced changes in November including a reduction in the upfront waiting time to five weeks from six. The work and pensions secretary, David Gauke, has increasingly begun to publicly reject Labour’s portrayal of UC as creating hardship for welfare claimants. On Twitter, he challenged Frank Field, the Labour MP who chairs the work and pensions committee, this month about the case of an individual voter.

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