CEY1426

Written evidence submitted by Child Poverty Action Group

About CPAG

Child Poverty Action Group (CPAG) works on behalf of the more than one in four children in the UK growing up in poverty. It doesn’t have to be like this. We work to understand what causes poverty, the impact it has on children’s lives, and how it can be prevented and solved – for good. We provide training, advice and information to make sure hard-up families get the financial support they need. We also carry out high profile legal work to establish and protect families’ rights.

About this submission

This submission draws on CPAG’s annual Cost of a Child report with Loughborough University to assess and track the cost of raising a child. It also uses evidence from our Early Warning System (EWS) and our Your Work Your Way project. EWS is a database of case studies submitted by frontline workers highlighting some of the problems families in poverty experience accessing social security benefits. Your Work Your Way is a project providing employment support and welfare rights advice to parents who are potential second earners in four areas of England.

Given CPAG’s areas of expertise, this submission focuses on access to childcare for lower income parents, specifically, the cost barriers that families face and the effectiveness of the social security system in helping parents overcome those barriers.

How affordable and easy to understand is the current provision of childcare in England and what steps, if any, could be taken to improve it, especially in relation to families living within the most deprived areas in England?

Families with young children face substantial childcare costs

Childcare is one of the largest expenses that families with children face. Since 2012 CPAG has been working with Loughborough University to assess and track the cost of raising a child, published in our annual Cost of a Child report. This analysis shows that childcare has become an increasingly large component of the cost of raising a child.

For a couple the total cost of raising a child to the age of 18 is £158,000, for a lone parent it is £209,000.[1] Childcare costs are a substantial component of this total for parents who want to work and who do not have access to unpaid childcare provided by family or friends. For a couple working full-time, childcare now comprises around 60 per cent of the lifetime cost of raising a child, compared to around 40 per cent in 2012.[2]

In general, raising a child becomes more expensive as they get older due to higher food, clothing, social participation and other costs for teenagers. But, when childcare costs are factored in, this cost trend is reversed – raising a child is most expensive when they are young. Figure 1 provides an example of how overall costs to family’s progress with the child’s age, in different childcare scenarios. It shows a stark contrast between families paying for all their childcare, for whom these dominate costs in the early years, and those who do not incur childcare costs.

Figure 1: Additional weekly cost of a second child for a couple family, by age and childcare status, 2022[3]

The main reason behind the patterns in childcare is the structure of the UK government’s early years subsidy. For children aged 0-1, no subsidy is available, with families having to bear the full cost. For some 2-year-olds and all 3- and 4-year-olds, there is an early years subsidy representing up to 30 hours a week of free childcare. Then, when children reach school age, before- and after-school childcare is needed however no statutory subsidies are provided at this stage (local areas and schools may provide individual subsidies).[4]

In the most deprived areas, a greater proportion of families will be in receipt of means-tested benefits which offer parents and carers some help with childcare costs. For families claiming universal credit (UC), 85 per cent of childcare costs are covered up to a cap. This, in combination with some free childcare for 2-year-olds (for those on means-tested benefits) and less childcare needed when children reach school age, means out-of-pocket childcare costs from age 2 onwards diminishes significantly, although design issues mean that accessing this childcare can be difficult (outlined later in this submission). The most expensive ages for childcare remain 0-1, the costs often being prohibitively high for low-income families.[5]

Are the current entitlements providing parents/carers with sufficient childcare, and to what extent are childcare costs affecting parents/carers from returning to work full-time?

Levels of support have not kept pace with rising childcare costs

As evidenced above, the cost of childcare, even for families entitled to support through means-tested benefits makes it harder for parents and carers to work part-time until they are able to access 30-hours of free childcare, and to work full-time until their children are old enough to not require care before and after school.

In addition, the ability of the social security system to help families with these costs has eroded as childcare costs have increased. Families receiving working tax credit or UC are eligible for support with childcare costs up to £175 a week for one child or £300 for two or more. These limits were set in 2005, as part of a ten-year strategy to improve access to high-quality childcare and employment opportunities for parents. The intention of the strategy was to:

“… ease affordability problems for those with the highest childcare costs… Families with pre-school children, those with several children, families needing full-time care and those living in London and the South East are among those most likely to benefit from extra help because they can face especially high costs.”[6]

In 2005, the average cost of a full-time place at a nursery in England for a child under 2 was approximately £140 a week.[7] By 2022, the cost had doubled, to £274 a week, almost £100 above the limit for support.[8] Even using a childminder in the cheapest region for this service, the East Midlands, families pay £201 on average for a full-time place, still £26 above the level eligible for support.

Not uprating the cap limits the number of childcare hours eligible for reimbursement. In 2022, a parent receiving Universal Credit with a child under 2 in England needing full time (50 hours) childcare could only be reimbursed for 27 out of 50 hours a week. Leaving them to cover £100 in childcare costs each week, on average. The limited access to funded childcare and UC’s cap on support can restrict the suitability of jobs available to parents and can mean they see little or no financial gain from working additional hours.

The following example from CPAG’s Early Warning System shows how the cost of childcare makes it harder for parents and carers to enter work even when they are able to access support in universal credit:

Tessa[9] is a teacher and has a 1-year-old child. She lives in a high-cost area for childcare and has to pay £400 a week for childcare during term time. Tessa’s baby is too young to be eligible for any funded hours of childcare and the maximum amount of support available through universal credit is £646 a month, or £149 a week. The maximum reimbursement cap means that instead of getting 85% of her costs covered, she would receive under 40%. Tessa cannot afford this and doesn’t know how she’ll balance her work and childcare without additional support.

When children start school, childcare costs are less of a barrier to part-time work, but the demands of school drop-off and pick-up mean that parents’ and carers’ employment choices remain severely limited without additional childcare.

The provision of before- and after-school activities enable parents to take up, and benefit from, full-time work without incurring the high cost of childcare. At present the availability and cost of this provision is variable. CPAG and Magic Breakfast analysis shows that free before- and after-school provision during term time, that enables parents to work or work more, could result in a low-income lone parent with two children being £1,200 better off annually, through the removal of childcare costs alone.[10] The availability of additional activities outside of core school hours would mean reduced childcare costs and more opportunities for parents to work more or find new or more rewarding employment opportunities.

Whether the current Tax-Free Childcare scheme, and support for childcare from the benefits and tax credit system, is working effectively or whether these subsidies could be better used within other childcare subsidies.

DWP administers support for childcare costs in arrears making it harder for families to access childcare and to enter work

Childcare providers often require a monthly payment in advance – which can exceed £500 for a part-time place and £1,000 for a full-time place.[11] This poses a significant access barrier for lower income families. While UC does support families with childcare costs, this is provided in arrears with parents having to submit receipts to receive reimbursement weeks after paying for childcare.[12] Many families receiving UC cannot afford to wait for reimbursement – 14% of couple families receiving benefits with children have no savings, rising to almost 1 in 3 (31%) single parent families.[13]

Evidence from our Early Warning System shows how upfront childcare costs can create barriers to work and progression for parents:

Charlie is a lone parent with three children. She works shifts that sometimes require her to work at night. Charlie is struggling to afford the essentials on her current income and wants to take on additional hours at work. However, she can’t afford the upfront childcare costs to allow her to work additional hours. Charlie has tried to get a loan to allow her to pay for the first month of childcare but was denied, and has no other source of financial support to draw on.

The Flexible Support Fund (FSF) aims to help parents on UC with the upfront cost of childcare but it doesn’t work well enough. The FSF is a locally managed discretionary fund designed to support claimants into work by removing some of the financial barriers to job entry.[14] While the FSF is available to help parents cover the upfront cost of the childcare, advisers note many claimants are unaware of the FSF and that working parents are not eligible to access the fund.

Yvette’s story from the Your Work Your Way project[15] highlights the low level of awareness of the FSF and the potential challenges parents can face requesting these funds:

Yvette has a young child and was recently offered a job. However, she is unable to afford the upfront costs of childcare to enable her to move into work. Yvette was unaware of the Flexible Support Fund but received advice from a welfare rights adviser encouraging her to request a grant from the FSF to enable her to move into work. She made a request through her journal but received a reply stating that financial support with childcare costs was only available in arrears through universal credit. After Yvette cited the FSF guidance document and quoted the Minister for Welfare Delivery,[16] she started to receive help making an application for funds from the FSF. Yvette said that without continued support from a welfare rights advisor, she wouldn’t have known about the FSF or persisted after her initial request for support was unsuccessful.

Parents able to access the FSF receive support towards the cost of the first month of childcare on entering work, but this can merely push the financial barrier into the following assessment period. Rules on the FSF prevent parents from accessing the childcare element of UC at the end of the month in which they received funds from the FSF, leaving them without support to pay for the second month of childcare.[17] Currently, the FSF delays rather than removes the barrier of upfront costs.

The FSF could be more effective if the UC regulations were amended to enable parents to claim the childcare element for the same assessment period in which they received funds from the FSF. This would remove the financial barrier of upfront costs, instead of delaying it. Equivalent measures were introduced in Northern Ireland in October 2021.[18]

Alongside improvements to the design of the system, our evidence highlights the ongoing challenge around awareness of the FSF. The effectiveness of discretionary support (such as the FSF) relies in part on awareness of its existence among claimants and DWP employees, and active promotion of the fund, which does not appear to be happening at present.

Recommendations

The government should commit to reforming childcare to reduce the high-costs and improve the quality and accessibility of childcare for low-income families by moving towards a universal, publicly funded system. In the interim, the government should take immediate steps to improve the aspects of UC which prevent lower income parents and carers from accessing childcare and pursuing employment opportunities:

• Raise awareness of support with upfront costs and expand eligibility by instructing Jobcentres to promote the Flexible Support Fund at the point of claiming UC and during periods of job search. Eligibility should be expanded to include working parents.
• Improve support with upfront costs by allowing parents to claim the childcare element for the same assessment period in which they received funds from the Flexible Support Fund, removing the barrier of upfront costs instead of delaying it.
• Ensure support better reflects the actual cost of childcare by pegging the maximum reimbursement cap to median regional market rates, increasing the share of covered costs from 85% to 100%, and removing the effective limit of support to two children.
• Invest in before and after-school clubs, making them fully funded and universally available, so all children in England can thrive and low-income families have more opportunities to work.

January 2023