The way childcare costs are paid in Universal Credit “directly conflicts” with the Government’s key aim for the policy: getting more people into work, says a report published today by the Work and Pensions Committee.
A key benefit DWP has claimed for Universal Credit is that it will see an additional 200,000 people move into work, and that the UK’s workforce will contribute over 100,000 million additional hours every year under the new benefit system. But its success or failure in achieving these aims depends largely on working parents.
Universal Credit claimants pay for childcare up-front
Universal Credit claimants must pay for childcare up-front and claim reimbursement from the Department after the childcare has been provided. This can leave households waiting weeks or even months to be paid back. Many of those households will be in precarious financial positions. Too many will face a stark choice: turn down a job offer, or get themselves into debt – to DWP, or to friends, family or other loan providers - in order to pay for childcare. The Department says that its approach to reimbursing childcare costs under UC is intended to reduce rates high rates of fraud and error in the legacy system. But prioritising this objective has created a barrier to employment that will be insurmountable for some households.
The Department has suggested “Budgeting Advances” as a solution for parents struggling with the costs of childcare, claiming that they are "not a loan but an advance" of Universal Credit entitlement. The Committee says this is simply “untrue”. The Government's own website is clear that Budgeting Advances are loans: debts that must be repaid. Claimants who are already struggling with ongoing costs should not be expected or encouraged to take on extra loans and debt in order to be able to get or keep a job. The Committee has previously expressed grave concerns over DWP’s approach to reclaiming debt. The Department is responsible for designing the barriers to work in to Universal Credit childcare support: it must shoulder responsibility for fixing them.
The Committee says:
- Direct payments of UC childcare support to childcare providers would alleviate the problem of upfront costs, give childcare providers much-needed certainty of income, and substantially reduce the risk of fraud and error. The Department’s objection that its IT systems as currently configured could not cope with direct payments and changing them “will take some time” does not counter the necessity or rightness of making those changes.
- As things stand, some 100,000 households - including the poorest - will receive less for their childcare costs than under the legacy system, and the value of payments has already eroded every year: the maximum amount DWP will reimburse has not increased since 2005. The Committee says Government should review the maximum amount and percentage of childcare costs that can be reimbursed under Universal Credit, modelling the effect of increasing them on parents’ participation in work and introducing London weighting to account for the very high childcare costs in the capital. The Department should carry out this work and implement the best of the two options before it starts so-called "managed migration" – transferring claimants of existing benefits to UC.
- It is unacceptable that households claiming Universal Credit - amongst them the poorest in society - are struggling with childcare costs while the Government is funding support for households earning up to £200,000 per year. The Government should divert funding from the schemes aimed at wealthier parents (Tax Free Childcare and the 30 hours free childcare) towards Universal Credit childcare.
- Every JCP has a “Flexible Support Fund”, a budget to provide non-repayable, discretionary grants to help people overcome barriers to work. This should be invaluable to claimants struggling with the upfront costs of childcare. But the Committee heard that the Fund was “the biggest secret in the Jobcentre” – little known and under-used. The Department’s limited data shows the FSF has been underspent in every year since 2012-13, and the proportion spent on childcare is minute. DWP should start to monitor the use and impact of the FSF.
Rt Hon Frank Field MP, Chair of the Committee, said:
"If the Government had set out to design a system to make it harder for parents to get into work, it could hardly have done better than this one. 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 own aim of getting more people into work. And it is simply irresponsible of Government to suggest that the way around this policy’s inherent problems is for struggling, striving parents to take on more debt - still more so to claim, untruthfully, that it is not a debt at all. It clearly is.
"This is about more than employment figures. Good quality childcare enhances a child’s life chances—and that enhances our society and our economy. If the Government doesn’t sort this out, Universal Credit childcare support will work against all that good, as well as against the objectives of Universal Credit itself."