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Childcare under Universal Credit isn’t working for parents. Here’s how we fix it.

With the government struggling to establish a parliamentary majority capable of unlocking the complexities behind our national Brexit conundrum, there’s another big problem with an obvious solution they could adopt tomorrow.

Right now, millions of the poorest parents in our country are struggling to meet childcare costs. Many of these parents are eligible for childcare support under Universal Credit. But here’s the catch. Parents have to pay first and then claim reimbursement. This is a huge burden for many struggling families, who don’t have the savings they need to cover the up-front costs.

This problem is compounded by the volatility of childcare costs. Unlike many other costs covered by Universal Credit – rent, utility bills or food, for example – childcare costs vary significantly throughout the year, with a spike during school holidays. Our research found that for the parents of a three-or-four-year-old, the summer vacation comes with an average increase of £630 a month in childcare costs.

Meeting this bill creates huge financial pressures. Parents report borrowing from family or friends, taking out loans, or using credit cards and getting into arrears. Some have to reduce their hours or drop out of work all together, defeating the very purpose of the Universal Credit system.

Here is what Lucy, a young mother from Manchester told us: “The summer holidays, any two-week holidays, they’re a nightmare. We’re on half term now, I’ve had to pay for two days of childcare, which is £70. I’ve just had to try and find that money. The next summer holidays, I don’t even know where I’m going to find that. It’s just constant debt.”

Another mother, Nichola from West Sussex, has a similar story which she’ll be sharing with the joint Work and Pensions and Education Select Committee inquiry into school holiday poverty, this morning.

These are individual stories, but they point to a national problem. Today, there are 2.2 million children under-five now growing-up in poverty in the UK – a rise of one quarter since 2010. These children are more likely to fall behind their peers even before they start school. Hard-working mothers want a chance to earn their way out of poverty and provide their children with decent childcare. But the current Universal Credit arrangements present a formidable obstacle.

The good news is that this is a movable obstacle. Childcare benefits could be paid to parents before they have paid the nursery or childminder. Parents could agree costs with the provider in advance and receive a bill which they submit to the DWP. Alternatively, the DWP could introduce a system of direct payments to childcare providers, similar to the existing system for rent payments or Tax Free Childcare, which more affluent parents benefit from.

If this doesn’t sound like legislative rocket-science, that’s because it’s not. Any working mother on a low-income could tell MPs how to design the changes to Universal Credit. Better still from a Treasury perspective, the solutions are cost neutral.

Affordable and decent quality childcare is an essential stepping-stone for families striving to work their way out of poverty and give their children the opportunities they deserve. When the costs of inaction are so devastatingly high, the solutions so clear, and the political support for reform so broad, it is surely time for the government to act decisively in support of working families.

Universal Credit reform may have its own deeper complexities, but lifting the financial burden of childcare from struggling parents is the right thing to do – and it’s really not Brexit!

PRESS RELEASE: Parents driven into debt as childcare costs soar in school holidays


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