Written evidence from Employers for Childcare [UCW0051]

Executive summary

Issues with the operation of Universal Credit are having a significant, negative impact on families in Northern Ireland, in particular the long wait to receive a first payment. While this is often cited as five weeks, we know from our work with families that this wait can be longer, sometimes six or seven weeks before they receive a first payment. This is extremely concerning and can lead to financial insecurity and potentially push families into poverty. Additionally, this wait compounds the challenge for families required to pay for childcare costs before being able to claim support retrospectively. Employers For Childcare’s key recommendations for the inquiry are therefore:

a)      End the long wait for the first payment, which is sometimes longer than five weeks.

b)      Change the Advance payment to a one-off, non-repayable grant to support new Universal Credit claimants during the wait for a first payment.

c)       Develop the Universal Credit system to enable childcare costs to be paid upfront and directly to childcare providers. This would alleviate the problem of upfront costs being a barrier to work, and give childcare providers greater security of income.

Introduction to Employers For Childcare
 

Employers For Childcare is a charity and social enterprise which supports parents with dependent children to get into and stay in work. Our charity’s activities include campaigning, lobbying and researching childcare and work-related issues which impact on families. Our annual Childcare Survey series (2010 – present) explores the ability of families to access and afford the childcare they need to enter into and progress in work.

We operate a free, confidential and impartial helpline – Employers For Childcare’s Family Benefits Advice Service. Our specialist trained Advisors provide support, information and advice on all aspects of childcare and social security across the UK. Last year, our Advisors helped 11,400 people and carried out 8,000 personalised calculations. Through our work with individuals who are affected by welfare policies we are able to provide an informed and evidence based response to this inquiry.

Wait for first payment

The long wait for an initial Universal Credit payment can leave families in a detrimental situation. We strongly believe that this has the potential to push people into a financial crisis at a time when the Universal Credit system should be lifting them out of financial hardship. Families that our Advisors work with on a daily basis have reported waiting six to seven weeks before receiving their first payment. This long wait leaves many without enough money to cover the basics and essentials for them and their families.

Women in Northern Ireland are particularly disproportionately impacted by issues with accessing Universal Credit and some report getting into debt and rent arrears because of the long wait for their first payment[1]. This is linked to the nature of work undertaken by women who are more likely to work part time hours than men, and in lower paid roles, and the high proportion of lone parents who are women, and who face greater barriers to accessing affordable childcare.

Requirement for childcare costs to be paid upfront and reimbursed

We do not believe there should be different mitigating options needed for different groups of claimants but think it is vital to highlight issues for parents who require childcare. The long wait for a first payment is exacerbated for families who are reliant on Universal Credit payments to support them with the cost of childcare. This is because Universal Credit requires claimants to pay for registered childcare upfront and claim reimbursement after the childcare has been provided. The requirement to pay childcare costs upfront coupled with the minimum five week wait often means that new claimants who have childcare costs will have had to pay two months of childcare costs before receiving their first Universal Credit payment.

This is a significant problem for parents and childcare providers, with delays in receiving payments, this policy can result in some households waiting weeks or even months to receive the support they are entitled to. It also requires claimants to have a level of savings equivalent to childcare costs for the length of time before receiving the Universal Credit award. This cycle is even more common where a childcare provider has to be paid on a weekly basis. This can intensify the already precarious financial situation of many families, create financial hardship, lead families to take on debt, or act as a barrier to work, in direct contrast to the stated objectives of Universal Credit (see case study in the Appendix).

The impact of this approach has been well documented, with Frank Field, Chair of the Work and Pensions Select Committee identifying that the current arrangements for childcare payments under Universal Credit were making it harder for parents to get into work: “It’s not just driving parents into despair and debt and creating problems for childcare providers – it’s also actively working to prevent the government achieving its aim of getting more people into work”. However, we are disappointed that little progress has been made to change this policy within the system. 

We have been drawing attention to this particular issue and the impact that this can have on households and also on childcare providers. Last year, in our annual Northern Ireland Childcare Survey 2019[2], childcare providers reported difficulties with cash flow because parents are paid their childcare costs in arrears. Some providers told us how they must chase late payments or, in some cases, go without payment altogether. This may also mean that childcare providers are not receiving their second month payment until the Universal Credit payment for the first month has been received. This is unsustainable and may lead to providers going out of business.

In addition, families in Northern Ireland do not have access to some of the support with registered childcare costs currently available in other parts of the UK. For example, eligible families in England with a three or four year old can benefit from up to 30 hours free childcare per week. No scheme akin to this is available for families in Northern Ireland. Our research found families in Northern Ireland can expect to pay a greater proportion of their household income on childcare than households across the UK as a whole. For two thirds of families in Northern Ireland, the childcare bill is their largest or second largest monthly outgoing. As a result, the requirement to pay childcare costs upfront has a greater, negative impact on a household’s finances in Northern Ireland than in other parts of the UK.

Furthermore, Northern Ireland does not have the Flexible Support Fund (FSF) that is available for parents in Great Britain to help with upfront childcare costs. In Northern Ireland, the Adviser Discretion Fund is available for claimants, up to a maximum of £300 in a 12 month period, to remove a barrier to employment and parents can claim this for upfront childcare costs. However, we are concerned that the promotion of this grant is relatively low and many parents are not aware that they can access it. The Fund is also at the discretion of the Work Coach and there are issues around work coaches applying discretion fairly. Our research found the average cost for a full-time childcare place in Northern Ireland is £166 per week and we are concerned that this fund is not sufficient to cover upfront childcare costs in full.

While the Government has explained its approach is intended to reduce fraud and error, this concern could be addressed without creating a situation where families are simply unable to afford to pay for childcare up front and, as a result, may feel that their only options are to get into debt, or turn down work.

Our recommendation is that Universal Credit support for registered childcare costs should be paid upfront and directly to childcare providers removing the burden from parents, especially lone parents. This would support families who are waiting for their first payment and may not have the finances to pay for this upfront cost first. This would also help parents with budgeting, to take up employment, and give providers greater certainty of income.

Advance payments

We are concerned that the Advance payment has the potential to push people further into debt and poverty. This is because it must be taken as a loan and then repaid out of a claimant’s Universal Credit payment. Repaying this loan can create more issues for families and only provides a short term measure to support people while they are waiting for their first payment. It is not surprising that a large number of Universal Credit claimants receive their first payment in debt due to the Advance payment.

We would strongly advocate for the Government to change the Advance payment to a one-off, non-repayable grant to support new Universal Credit claimants through the period before a first payment is received. This would reduce financial pressure on households and provide individuals with the necessary means to buy essentials at a period when they have no income.

Conclusion

Issues with the operation of the Universal Credit system are having a significant, negative impact on many families in Northern Ireland, particularly associated with the long wait for first payment and upfront childcare costs. As a charity that works with Universal Credit claimants on a daily basis, we strongly believe that removing the minimum five or six week wait for first payment will have a positive impact on claimants and help to ensure that the Universal Credit system is achieving its objectives and is lifting families out of poverty, removing barriers to work.

Appendix: Employers For Childcare case study

This case study reflects actual clients of Employers For Childcare’s Family Benefits Advice Service. Please note that names have been changed to maintain anonymity.

Case Study: Incurring registered childcare costs
 

Bob and Alex have 3 children, Bob works full time, Alex is not currently working, and they are in receipt of Universal Credit of £79.33 per week. Alex has been out of work for some time while the children were small, and is considering returning to work part time, working 16 hours earning £131.36 per week. To facilitate Alex working they are considering using registered childcare at a cost of £110 per week. Bob and Alex are aware that they will receive 85% of their childcare costs through the Childcare Element of Universal Credit.

In order to receive help with childcare costs through Universal Credit Bob and Alex must first pay the childcare provider in advance of using the childcare, and then provide proof of payment to Universal Credit through either taking the physical copies to the Jobs and Benefits Office, or uploading a scanned copy to their online Universal Credit journal. They will not start to receive the reimbursement of their childcare costs until at least a month after they have started to pay for the childcare place.

Impact: Bob and Alex cannot afford to pay for at least a month’s childcare upfront when they will not receive any help towards these costs for at least another month. This means that choosing to start work actually puts them into financial hardship. The way that Universal Credit treats registered childcare costs is a barrier to Alex moving into work.

April 2020