Written evidence from Child Poverty Action Group (UCR0263)
About Child Poverty Action Group and our Early Warning System
Child Poverty Action Group works on behalf of the more than one in four children in the UK growing up in poverty. We use our understanding of what causes poverty and the impact it has on children’s lives to campaign for policies that will prevent and solve poverty – for good.
Our Early Warning System gathers cases from advisers working with families and social security recipients around the country, and analyses these to identify emerging issues related to social security reforms including the introduction of universal credit. The Early Warning System is made possible by the support of Oak Foundation and Barrow Cadbury Trust.
- Difficulties paying the upfront costs of childcare
The requirement in all instances that childcare costs are paid before the childcare costs element can be included in a UC award is the most common issue raised in connection with childcare costs in universal credit on the Early Warning System.
Universal credit rules dictate that the childcare costs element can only be included in the award of universal credit, at the end of an assessment period, if the claimant has already paid the childcare provider for childcare costs related to that assessment period. Parents must have paid for childcare – not only become liable for it – in order to claim back costs.
Regulation 31 of the Universal Credit Regulations (2013/376) requires that both the work condition and the childcare condition are met before childcare costs element can be included in UC.
Regulation 33 states that the ‘childcare condition’ is met only when “the claimant has paid charges for relevant childcare that are attributable to that assessment period…” (reg33(1)(za)).
It is clearly difficult for parents on a low income pay for childcare costs upfront, particularly if they are starting a new job after a period in which their only income has come from universal credit and other benefits, but also if they are in work. Some childcare providers require a term’s fees in advance – amounts which can run to the thousands.
Not only is it difficult for parents to find money to meet these upfront costs, but it could take some months for them to receive the full amount back through their UC. Amounts for childcare are only included in universal credit awards in respect of the assessment period in which childcare was received, even it was paid for far in advance. If someone pays in advance for a term of childcare early in their assessment period, they will not receive any of the costs back for up to a month and seven days, and then only for the days of childcare used in that assessment period. If childcare use is spread over three assessment periods they may not receive their full entitlement for three months and seven days.
A further less obvious issue is created by the provisions of regulation 34A(c), which states that childcare costs paid during the two assessment periods prior to the assessment period in which the childcare is received are ‘attributable’ to the assessment period in which childcare is received.
This means that payments made in an assessment period which falls three or more assessment periods in advance of the one in which the childcare is received, are not attributable to any assessment period and cannot be included in the calculation of UC entitlement. In other words the parents will not receive any childcare costs element in respect of childcare costs paid more than three assessment periods before the one in which they are used. It is possible that parents using providers requiring longer-term advance payments could fall foul of this, as the following worked example shows:
A claimant pays a £1,500 childcare bill upfront on 15 July, covering childcare for the period from 23 July to 22 October (totalling 65 days of childcare). They report this to the DWP with evidence of payment on the same day.
Their assessment period (AP) runs from the 3rd of one month to the 2nd of the next month.
For the AP running from 3 July to 2 August, they receive a childcare costs element in respect of childcare used between 23 July and 2 August, i.e. 9 days of childcare. This is paid to them on 9 August, 25 days after they paid the £1,500 bill.
For the AP running from 3 August to 2 September, they receive a childcare costs element in respect of childcare used between 3 August and 2 September, i.e. 20 days of childcare. This is paid on 9 September, 56 days after they paid the £1,500 bill.
For the AP running from 3 September to 2 October, they receive a childcare costs element in respect of childcare used between 3 September and 2 October, i.e. 22 days of childcare. This is paid on 9 October, 86 days after they paid the £1,500 bill.
For the AP running from 3 October to 2 November, they use 14 days of the childcare which was paid for in July and reported to the DWP, but receive no childcare cost element because the childcare costs were not reported within the current AP or the last two APs.
Two possible measures exist which in theory could help parents meet upfront costs, however in our experience these do not adequately address the problem:
- Budgeting advances are only available for people who fall below an earnings limit over the previous six months which excludes many people who have moved in and out of work over the last six months, or who have recently become single parents.
- The Flexible Support Fund is not well advertised, with limited information available in the public domain, and as it is locally managed there is no guarantee that is being offered to help parents meet the cost of childcare. Many parents have difficulty accessing this fund in practice and are not directed to it by work coaches. It is not mentioned in the ‘childcare’ section of the Understanding Universal Credit website (https://www.understandinguniversalcredit.gov.uk/new-to-universal-credit/children-and-childcare/). In 2015/16 over 12% of the Flexible Support Fund went unspent. In 2012/13 a minute proportion (0.02%) of the Flexible Support Fund was spent on childcare,[1] and subsequent requests for a breakdown of how the fund is spent have met with the response that this data is not recorded as the fund is locally managed.[2]
Case studies
A claimant living in South London was offered a new job and has found suitable childcare, but has to pay £1,000 childcare costs up-front before she can start the job. Part of this will be paid back in her universal credit at the end of the assessment period in which she makes the payment, but some will be paid two assessment periods after the payment was made, leaving her out of pocket over a long period (see box above).
A single parent could not afford to pay her childcare costs upfront. She requested a budgeting advance which was refused as she had not been on UC or other benefits long enough. She was not informed about the possibility of help from the Flexible Support Fund.
A single parent claimant who was an EU national had previously worked as a cleaner until a period of ill-health prevented her from working. She is now considering a return to work, but is prevented by the upfront costs of childcare. In turn this prevents her from establishing a right to reside as a worker and thus becoming entitled to universal credit.
Recommendations
There are a number of possible solutions to this problem, for example:
- Ensure adequate budget for the Flexible Support Fund and proactively advertise its availability to parents, for example through the Understanding Universal Credit website and leaflets/posters in jobcentres, as well as training work coaches to proactively point parents to this fund when they take up a new job.
- Allow childcare costs to be repaid through universal credit in relation to the assessment period in which they were paid by the parent, rather than the assessment period in which childcare was used. This would require lifting the monthly ceiling on childcare costs which can be paid, or multiplying the cap by the number of months in which the childcare will be used.
- Reporting rules and procedures
UC regulations require parents to report that childcare costs have been paid, by the end of the assessment period which the childcare costs are ‘attributable to’, in order for them to be paid the childcare costs element for that assessment period. Unless the claimant pays for childcare costs in arrears, childcare costs are attributable to the assessment period in which the childcare is received.
In practice this means parents often have a very limited time to report that they have paid a childcare cost, particularly if they pay the bill toward the end of the assessment period in which the childcare was received (i.e. the assessment period to which the childcare was attributable).
If the bill is paid at the end of the assessment period in which the childcare was received, parents may have as little as one day to report their childcare costs bill as having been paid in order to be certain that they receive the childcare costs element at the end of the assessment period. This leads to people missing out on their childcare costs element altogether in some months. The difficulty is particularly acute if childcare providers do not routinely provide a receipt to parents paying for childcare until a few days later (e.g. in the post), which could mean that some parents have entered their next assessment period.
Regulation 33(2) allows for late reporting of payment of childcare costs within a maximum of 13 months. However childcare element can only be include in UC entitlement when payment of childcare costs is reported late if “the Secretary of State is satisfied that it is reasonable to do so” and that the claimant provides evidence that special circumstances prevented her/him from doing so within the normal time limit. [3]
Case study: Claimant left their job because of difficulties claiming childcare costs
One couple missed out on the childcare costs element when they reported their childcare costs bill as paid a few days after the assessment period to which the childcare costs were attributable ended. They were told by jobcentre staff that due to late reporting no childcare costs element could be paid for that assessment period – failing to make reference to late reporting rules in regulations 33(2).
This misinformation and the strict reporting criteria for childcare costs meant that as well as missing out on their childcare element in that month, the family’s UC income varied significantly from month to month, budgeting was impossible and great stress was caused to the parents.
The family also found it difficult to ask their childcare provider to provide receipts according to the schedule required by UC, rather than on the schedule usually used by the provider: “She has found the process of constantly having to remind the nursery to give her a receipt for the childcare every week by a certain date really awkward and it has made her feel uncomfortable.”
The family was forced to seek help from the foodbank and the working parent has left her job as she did not feel able to rely on getting help with childcare costs from UC.
We have also been told of jobcentres refusing handwritten receipts provided for example by self-employed childminders who may not have headed paper or be accustomed to providing printed receipts. In this case it is claimants who lose out. One claimant lost her childminder when she was unable to keep paying her, and subsequently gave up her job.
Finally it is a very positive step that photos of childcare receipts can now be uploaded to journals rather than claimants having to post these in or visit the jobcentre in person (the latter being particularly difficult for those in full-time work). However we have heard some ongoing reports of difficulties with this process, with reports that claimants have to request the ‘button’ for uploading receipts to be added to their journal each time they want to submit them, rather than the button remaining there for future use. This seems unduly time-consuming and burdensome for both claimants and UC staff. Other claimants are being told (perhaps incorrectly) that it is not possible. Some advisers have told us that their clients find the process more straightforward, which suggests that it may not be being offered consistently or perhaps that UC staff in some areas require additional training to make sure the new procedures are followed.
Recommendations
It would greatly assist parents if the rules around late reporting of childcare costs were relaxed, allowing costs to be reported in the assessment period following the one in which the childcare was received or removing the requirement on parents to demonstrate that ‘special circumstances’ prevented them from reporting within the current time limit.
We also recommend that when claimants request a button for uploading childcare costs, that this becomes a permanent feature of their journal, and that UC staff are fully briefed and trained in the new approach to receiving childcare receipts digitally.
- Issues facing parents who are in arrears to their childcare providers
Any parent who is in arrears for their childcare costs for any reason faces a particular difficulty accessing support from UC to pay their arrears and get back on to an even keel of payments and ensure continued access to childcare allowing them to stay in work. First, they must make the payment before they can be awarded any childcare costs element. Without easy access to credit and for people earning a low income, these debts to childcare providers can be very difficult for UC claimants to repay.
Regulation 34A(c) prescribes that childcare costs paid during an assessment period subsequent to the assessment period in which the childcare was provided – i.e. paid by parents to providers in arrears - are attributable to the assessment period in which the childcare costs were paid. Additionally regulations 34 and 36 of UC Regulations prescribe an absolute maximum for the childcare costs element of £646.35 (one child) or £1108.04 (two or more children) in any one assessment period.
The combined impact of these regulations is that if a parent does manage to find the money to pay off a substantial debt to a nursery provider, his or her entitlement to childcare costs element in UC will be capped at one of the two figures mentioned above. As the arrears bill owed to the nursery is likely to be considerably higher than these limits, parents who – for example - borrow money to pay their childcare debts, are likely to receive childcare costs element at the end of the assessment period which has a far lower value than the debt they have borrowed.
Case study
A single parent in Bournemouth has accrued a debt for childcare of £3,000 to his son’s nursery. The nursery provider has until recently tolerated these debts on the basis that the parent’s UC award will eventually allow him to repay his debt.
In practice the parent is unable to clear debts to the nursery because he cannot find credit to pay the bill in advance of the award of UC childcare costs element. He is therefore unable to pay his debt to the nursery and his son has now lost his place. The nursery has lost considerable amounts and any goodwill toward UC claimants in the mind of the childcare provider or willingness to offer their children a nursery place is likely to have been lost.
If he were able to borrow sufficient money to pay the £3,000 bill, these costs would be attributable to the assessment period in which he reported payment of the bill but his entitlement for that assessment period would be limited to £646.35, still leaving him with debt in excess of £2,350.
Recommendations
Possible solutions to difficulties making payments before the childcare costs element has been awarded are discussed under Section 1 above.
It would also help in this situation if, where childcare costs are being paid in arrears, the monthly ceiling for childcare costs were lifted or multiplied by the number of months in which the childcare was received were effectively added.
- Refusals to pay childcare costs for particular circumstances
The childcare cost element is provided to “enable the claimant to take up work or to continue to work”[4] and is paid to working parents (or those receiving statutory benefits such a statutory sick, maternity, paternity, adoption, shared parental leave or maternity allowance or those about to start work or temporarily between jobs in order that they can maintain existing childcare arrangements).
We have received reports of claimants who have been refused UC childcare costs element because their childcare costs are higher than their wages. This is not in keeping with the supposed aim of UC enabling people to start work and then progress into higher pay over time.
We have also been informed of a case of a single parent earning the national minimum wage who was refused childcare costs on the basis that the receipt she submitted was for childcare covering her working hours plus one hour of travel between childcare provider and her workplace and this was deemed too many hours of childcare.
We are also concerned that the childcare costs element is not available to parents undergoing a course of training or study, nor for jobseekers who may find it difficult to combine their required hours of jobsearch with the needs of their children. For example a single parent of a thirteen year old is expected to spend 35 hours per week looking for work but is not entitled to help with the cost of an after-school club for their child which would allow them to fit in a full day of work search activities.
Recommendations
It is important that decisions around allowing the childcare costs element to be paid are rational and support the wider aims of helping claimants into work and to progress in work, rather than being based on narrow calculations about the cost of childcare vs current wages or the exact hours required. It should also be borne in mind when making these decisions that claimants have already paid for the childcare they are receiving by the time they request costs from UC, so a decision not to pay the childcare element will not result in the claimant deciding not to use that childcare provider for the period in question but will simply leave them out of pocket.
In order to support the goal of assisting parents to progress in employment, we recommend that childcare costs also be payable for parents who are taking part in an approved programme of training, study or volunteering, and for after-school clubs and holiday clubs for parents who are also jobseekers.
- Claimants’ understanding of childcare costs rules
We have heard repeatedly that claimants struggle to understand the complex rules and procedures around the reporting and payment of childcare costs, particularly where receipts submitted cover multiple assessment periods, parts of assessment periods and so on. This is not surprising given the complexity of the system – even expert advisers have struggled to get to grips with it – and creates a number of problems:
- Claimants receive an amount for their childcare costs element in a given assessment period but find it difficult to work out whether this is the correct amount, as no explanation of the calculation is given on their online account.
- Claimants are at risk of falling foul of complicated reporting rules and inadvertently failing to report costs at the correct time, leading to them missing out on support (see above).
- Claimants find it extremely difficult to budget. This is particularly true for claimants who already see their UC award fluctuate due to their earnings cycles, especially couples with different pay cycles neither of whom may receive the same number of paydays from one assessment period to the next.
Recommendations
Claimants need a clear explanation of how their childcare costs element has been calculated each month, for example noting the proportion of their childcare bill which has been taken into account and which days of childcare the payments relate to. This enables parents to better understand the system (helping them to plan and budget for the next assessment period) and to check that they are receiving the correct amount.
Much more information needs to be provided upfront to claimants about how the system of reclaiming childcare costs works, and assistance provided on an individual basis from work coaches to help people calculate how much childcare element they will be paid in each month and budget accordingly.
- The amount of childcare covered
On the surface, the 85% of childcare costs payable through universal credit looks a higher proportion than the 70% payable through working tax credit. However when the childcare disregards in Housing Benefit and Council Tax Benefit is taken into account, total support for childcare costs in the legacy system could be up to 96%. This means that for some people – probably those on the lowest incomes – there is less support for the costs of childcare under UC than the legacy system.
Modelling by the Institute for Public Policy Research showed that, comparing the legacy benefit system with universal credit, the effect of the removal of the 16 hours rule combined with this reduction in the maximum support available for childcare means that childcare support has increased for parents working small numbers of hours but in some cases has gone down for those working longer hours, particularly single parents and those with higher childcare costs (either because they live in a high-cost area or because they have more children). The differences can be substantial.
While it is helpful that UC supports parents to move into small hours jobs, it is concerning that it performs less well at giving parents the support they need with childcare costs as they increase their hours in line with UC’s aim. This could contribute to the wider effect of changes to work incentives in UC (mainly the cut to work allowances) which risk leaving single parents and second earners in a position where they see little financial benefit from increasing their hours.
The following box gives two examples.
A single parent with two children aged two and five, earning the national living wage and paying for childcare at the national average cost, working 12 hours per week, would pay over £1,600 a year for childcare after all available support has been claimed under the legacy benefits system but just £242 a year under universal credit, because they qualify for support when working less than 16 hours.
However if she increases her hours of work, UC starts to become less generous in supporting childcare costs than the legacy system leaving her with more than with twice the childcare costs to pay from her own pocket. If the same single parent works 18 hours per week she would have net childcare costs of £531 per year under UC, compared with just £160 under the legacy system. If they work 30 hours per week, they will face net childcare costs of £1,142 under UC compared with just £533 under the legacy system.
A couple with three children aged two, five and seven, with one full-time earner and a second earner working 12 hours per week, both on the national living wage and paying the national average childcare costs, would have net childcare costs (after claiming all support) of £4,693 per year under the legacy system compared with £741 under UC. However if the second earner increases her hours to 18 per week, the family would have to pay £1,112 per year towards childcare costs under UC compared with the £447 they would have to pay under the legacy system. If she works 30 hours, she the family will have to find £1,853 towards childcare costs under UC compared with £1,096 in the legacy system.
For full details and more examples see p.79 – 81 of CPAG’s report ‘The Austerity Generation’, downloadable from www.cpag.org.uk/austerity
It is also worth noting that the ceiling for childcare costs has not been uprated since 2005 in spite of dramatic increases in childcare costs during this period. Modelling by Loughborough University showed that this can create negative financial incentives to take on an additional hour of work for claimants in areas where childcare costs are high, such as London. This is illustrated in Table 1 below.
Even in other parts of the country where the ceiling is not exceeded, it is clear that in spite of the 85% subsidy in UC, retained hourly earnings after childcare can look low.
Source: Hirsch, D. (2015) Children in London: the extra cost, Child Poverty Action Group. http://www.cpag.org.uk/sites/default/files/CPAG_Children%20in%20London%20the%20extra%20costs_Sep t%2015.pdf
Recommendations
We recommend that in order to support working parents, the childcare subsidy in UC be increased to 95%, in order to match (or virtually match) the support available in the legacy benefit system.
We also recommend that the childcare ceiling be uplifted in light of inflation in childcare costs since 2005 and a commitment made to regularly review the ceiling and increase it in line with rising costs.
- Treatment of people working as childminders under UC
We are concerned about the experience of people working as childminders if they themselves are claiming UC and subject to the Minimum Income Floor as a self-employed claimant. Because of legal maximum child to adult ratios, it will be very difficult for childminders to expand their business in the way that other self-employed people might be expected to. Second, many childminders look after their own children at the same time as those they are paid to look after, while other self-employed workers would have to pay for childcare. No deduction from the Minimum Income Floor is made to take account of this.
Even leaving aside the Minimum Income Floor, we expect that childminders will receive less support under UC than legacy benefits. Legacy benefits treat self-employed childminders as having a net profit equal to one-third of their receipts (less National Insurance, income tax and half pension contributions), whereas UC assesses actual income and outgoings. For a low-overhead business such as childminding this may provide a more accurate assessment of profits, but one which we fear will leave many childminders with a lower award.
We are concerned about these effects not just because of the effect on the livelihoods of childminders themselves, but because childminders currently provide the cheapest form of childcare (other than live-in au-pairs) and are often flexible in a way which nurseries and after-school clubs are not. If childminders were to be driven out of business this would have serious knock-on consequences for the situation of other parents in employment or looking to move into work.
Recommendations
We recommend that analysis be carried out of the likely effect of the Minimum Income Floor on childminder incomes and consideration be given to applying an exemption from the Minimum Income Floor were childminders are already working their expected hours at the maximum allowable child to adult ratio.
We also suggest that deductions be made from the Minimum Income Floor for childminders who are also looking after their own children, in recognition of the fact that were they engaged in another business (or were they to put their own child in other childcare in order to offer another paid place) they would be incurring childcare costs.
September 2018