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Childcare debt to soar as universal credit hits families

  • Families denied help to afford ‘upfront’ cost of a childcare place
  • Parents in England face debt or turning down work as cost for the first month of fulltime childcare for a 1-year old hits £1,000. Fees are even higher in London and the South East.
  • Government urged to make changes before Universal Credit rolled out to 500,000 parents

June 21, 2018

The switch to Universal Credit - the Government’s flagship welfare reform programme - is hitting parents with upfront childcare bills that have reached £1,000, new analysis from Save the Children reveals. The charity has warned that this will force families into ‘childcare debt’ or block them from going back to work unless the government makes urgent changes.

Childcare support under Universal Credit scraps the help low-income families currently claim in advance for childcare bills - forcing parents to pay sky-high fees upfront. They then face waiting at least a month to be reimbursed.

Half of low income families have no savings. These families will be forced hundreds of pounds into the red just to afford the childcare they need to start work. Today’s analysis reveals the scale of this hole in family finances in England, once they have bought household essentials:

  • £780 – the overspend by a single mum with a one year old starting a full time job on minimum wage
  • £460 – the overspend by a single mum with a one year old starting a part time job on minimum wage
  • £580 – the overspend by a family with a one year old and a three year old, where one partner is already working full time on minimum wage, and the other partner is returning to full time work

Steven McIntosh, Save the Children Director of UK Policy, Advocacy and Campaigns said:

Parents are trapped between going into debt to afford childcare and turning down work because they can’t risk household direct debits bouncing. This defeats the point of Universal Credit.

“Childcare support should help parents find work and improve children’s chances in life. Instead of making it harder to get into work, the Government must switch to providing upfront help with childcare costs.

Universal Credit brings together six means-tested benefits together into a single, monthly payment for low-income households. The Government’s roll out has so far reached around 10% of the people who will eventually be eligible. Under the existing benefits system parents can make a claim for help with childcare costs in advance of paying nursery bills.

Save the Children says that the way childcare support is paid under Universal Credit is unfair to lower paid families. The Government’s tax-free childcare scheme pays higher income families £2 for every £8 they spend on childcare. Unlike the support in Universal Credit, this help with costs is provided upfront, reducing the pressure of childcare bills for these better-off parents.

Office worker Louise, 29, from Southport recently returned to work after maternity leave. She received her first Universal Credit payment after 6 weeks, but her second payment didn’t come through, without any warning or explanation. After paying upfront childcare costs she and her partner went over their overdraft and direct debits for mobile phone bills, water, and gas and electric bounced. Fees for these reached £60 in one month. They have gone into council tax arrears and are on their final notice.

Louise said, “You end up paying out the most important things – rent and nursery. Then towards the end of the month there’s nothing left for anything else. We literally had nothing during this time and all our direct debits bounced which caused extra charges to us from our bank.”

Estimated upfront costs for the first month of childcare in England

Age of child

Part-time place (25 hours per week)

Full-time place (40 hours per week)




Two (including 15 free hours entitlement)[iv]



Two (without 15 free hours)



Three or four (including 15 free hours entitlement)



Three or four (including 30 free hours entitlement)



Regional variations have also been revealed. The highest cost for a one-year old to start full time childcare is found in London, at £1,423. The lowest is in the North West, where the equivalent fee is £856.

These costs risks tipping working families over the financial precipice. A quarter of lowest income families already face problem debt. A third owe more than the value of their assets.

Save the Children is calling for parents on Universal Credit to get immediate help to pay upfront childcare costs – echoing how the Government supports better-off families through tax-free childcare.

The Government claims that ‘budgeting advances’ will help. But they are designed to cover ‘emergency and one-off expenses’. A family can only have one at a time and half of all families on Universal Credit already have one, leaving them with nowhere to turn. For the rest, taking out a budget advance means putting your family in debt in order to pay these costs, and then leaves you with no option if there is a genuine ‘one off’ or ‘emergency’.

McIntosh continued:

“Childcare costs should never create an ‘emergency’ for family finances.

“It will strike many as deeply unfair that poorer families struggling to improve their earnings face bigger hurdles getting the support they’re entitled to than better off families.

“Eventually, 500,000 families across the UK will receive childcare support through Universal Credit. With 90% of the Universal Credit roll out still to come, it’s vital the Government takes urgent steps now before the number of families in trouble starts to snowball.”


Regional variations in upfront costs for the first month of childcare in England


Age one, part time

Age one, full time

Age two, part time, no free hours

Age two full time, 15 free hours

Age three or four, part time, 15 free hours

Age three or four, full time, 30 free hours

East Midlands







East of England







Inner London







Outer London







North East







North West







South East







South West







West Midlands







Yorkshire and the Humber















  • Figures on average upfront childcare costs are based on average nursery costs in England, taken from the Family and Childcare Trust’s Childcare Survey 2018. Upfront costs are calculated as one month’s fees plus £150 deposit (except where families are only using their free hours entitlement, in which case no deposit is payable).
  • The government’s flagship welfare reform programme will replace the Working Tax Credit – and several other benefits – with Universal Credit, which brings together six means-tested benefits together into a single, monthly payment for low-income households.
  • Universal Credit will retain a childcare element, reimbursing parents for up to 85% of their childcare costs, with similar monthly limits to those under the Working Tax Credit. However, the childcare element – in both the Working Tax Credit and Universal Credit – is a way of reimbursing parents for out-of-pocket childcare costs, rather than providing childcare that is free or affordable at the point of use.
  • The analysis in our briefing is on families in England but, given that Universal Credit applies across the UK, we recognise our recommendations will have wider relevance and will need to be considered in the context of the wider systems of childcare in each nation
  • In March, the Treasury Select Committee inquiry into childcare called upfront costs a ‘fundamental design flaw’ in the childcare element of Universal Credit.
  • In June, the National Audit Office found that one third of childcare support claimants under Universal Credit have not received their childcare payments on time
  • It is estimated that:
    • 90% of childcare providers in England require payment of childcare fees in advance
    • 59% require payment on a monthly basis
    • 40% charge deposits of up to £150 (Citizens Advice Bureau 2014)
  • Figures on average family spending in the UK are based on the Living Costs and Food Survey 2016/17 (ONS 2018b). Figures include average spending on:
    • Rent (based on average local housing allowance figures for a two-bedroom property in England
    • Food and non-alcoholic drinks
    • Clothing and footwear
    • Health (including medicines, prescriptions and glasses)
    • Communication (including telephone and internet charges)
    • Miscellaneous (including toiletries, hairdressing, insurance and bank charges)
  • Estimated overspend figures are based on these living costs and on Save the Children’s modelling of family incomes including take-home pay, Child Benefit and Universal Credit entitlements. All working adults are assumed to earn the National Living Wage of £7.83 per hour, and earnings are net of income tax and National Insurance contributions.

We have spokespeople available for interview. Call Dan Stewart on 020 3763 0119 | 07950 822494 | 020 7012 6841 or email d.stewart@savethechildren.org.uk with any enquiries.



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