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Call for Evidence

Universal credit and childcare costs

Scope of inquiry and background

Parents and carers’ decisions about whether and how much to work are closely tied to being able to access affordable, good quality childcare. The Government provides support with childcare costs through Universal Credit, and through schemes including Tax-Free Childcare, and free childcare hours entitlements.

The previous Work and Pensions Committee looked at Childcare in Universal Credit in 2019. The previous Committee noted that getting childcare support right was critical to the success of Universal Credit:

The Department for Work and Pensions (DWP/the Department) aspires for 200,000 more people to work under Universal Credit than under the system it replaces (the “legacy system”), and for people already in work to contribute over 100 million additional hours every year. Its success or failure in achieving these aims depends largely on working parents.

It concluded that there were flaws in the way that childcare support is paid that work against these objectives. The previous Committee said:

The design of Universal Credit childcare support directly conflicts with the aim of making it easier for claimants to work, or to work more hours.

The main issues identified were:

  • Most childcare providers ask payments to pay for at least the first month before a child can take up a place, but Universal Credit childcare support is paid in arrears. Parents and carers often struggle to pay deposits without incurring further debt, and must also fund subsequent months upfront.
  • The impact of the cap on reimbursement for childcare under Universal Credit, which is 85% of costs.
  • The maximum amounts that the Department will reimburse each month, which have not increased since 2005.
  • The quality and comprehensiveness of advice to help people make decisions on which childcare support schemes to use.
  • Whether the schemes (including UC and Tax-Free Childcare) are well suited to the people expected to use them, and whether they represent the most effective use of money.

In response, the Government committed to some changes, including promoting the Jobcentre Plus Flexible Support Fund as a way of paying deposits; improving communication with and information for would-be claimants, and introducing more flexibility around evidence and reporting of costs. It also committed to providing a statistical analysis on the impact of the 85% cap by Summer 2019, which was published in October 2021.

September 2021 evidence

In September 2021, the Committee held an oral evidence session with four parents as part of its inquiry on DWP’s response to the coronavirus outbreak, in the context of the removal of the £20 uplift from Universal Credit. The Committee heard that the issues identified in the previous Committee’s report were still creating barriers to parents moving into work, or working more hours.

Giving evidence to the Committee, Gemma Widdowfield said:

When I first went back to work, my childcare was between £800 and £900, depending on the length of the month, because you can have a four-week or a five-week month. The issue was the up-front childcare costs. You are expected to provide a receipt that you have paid that. To be told that you need to pay this £800 and you are like, “Where’s that money going to come from?” and then Universal Credit will reimburse the 85% or the cap. The cap is £646.35, so if your childcare is £900, you have to pay that extra £300.

Vikki Waterman told the Committee:

When I first got back to work, for my two children in part-time childcare it was £1,400 a month and that was £500 a month over what I was even earning at all. I had to find that money and pay that up front so that I could pay the nursery so that they would take her, and then claim it back from Universal Credit. It was never fully explained to me that they would then take your earnings into consideration. To a certain extent that is rightly so but it is a case of, “This is how much your childcare was and this is how much we’ll pay towards it.” It is not 85%. By the time they make all of their deductions, you are left with much, much, much less than that.

This is particularly important given the removal of the uplift and the changes to the Universal Credit work allowances and taper rate introduced in the 2021 Autumn budget. Parents and carers’ ability to take advantage of these measures and compensate for the loss of the uplift by working, or working more hours, will be limited if they cannot access appropriate childcare.

Terms of Reference

The Committee would like to hear views on the following questions. You don’t have to answer all of the questions. You can respond on behalf of an organisation, or as an individual.

The deadline for submissions is: 13 January 2022

How childcare support is paid

  1. What is the impact of having to pay for childcare upfront under Universal Credit on parents’ decisions to work, or to work more hours?
  2. How effective is the support that DWP offers with upfront costs (for example, through the Flexible Support Fund)? How could it be improved?

Caps and limits on support

  1. What is the impact on claimants of the monthly maximum reimbursement cap on childcare costs in Universal Credit, and the 85% cap? Is there a case for changing either of them?
    1. If so, what do we know about the likely costs and effects?
  2. What effect do the existing caps have on childcare providers and the availability of childcare?
    1. What has been the impact of not uprating the maximum amount payable since 2005?
  3. What impact do deductions from benefit payments have on the amount of childcare support that people actually receive? Are there any changes DWP could make to the way it manages deductions?

Advice on childcare support

  1. In 2019, the Department said it would work with other departments to improve communication with, and information provided to, claimants about childcare support. How effective have these changes been? What further changes could DWP make?

Wider childcare support schemes

  1. Does the Government’s current approach to funding childcare support represent good value for money?

This call for written evidence has now closed.

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