Good News on Childcare Costs for the Poorest Families – matched with added UC requirements for main childcarer in UC families.

Briefing by Head of Research Laura Dewar

At Last!  Increased childcare support to those on Universal Credit and those with the youngest children- A step in the right direction. At the same The Government has also put in place a new duty on the main childcarer in a UC family to look for work – potentially one of the biggest expansions in job seekers for many years.

In order to work most parents in the UK will need to rely on paid for childcare.  However, the way that childcare costs are supported by government is complicated and has evolved and been tweaked with over many years.  From tax free childcare, support for pre-school aged children and help through Universal Credit the system is complex and crucially, despite government investment, leaves too many parents concluding that high childcare costs mean that work just does not pay.  It is positive that today the Chancellor is seeking to target additional support for childcare to the most disadvantaged families who are on Universal Credit and to open up the free 30 hour childcare to cover babies from nine months up to two year olds.  I think that it is positive that support is going to be targeted at the most disadvantaged although I have some reservations about those low income families who might be excluded from the expanded 30 hour offer.  In this article I am going to set out why I think that it is important that the Chancellor targets childcare support for the most disadvantaged families.

Childcare costs for all families in the UK are high but they are a particular issue for the poorest households. According to data from the OECD the UK has some of the highest childcare costs in the world, which for the lowest paid, “can substantially weaken employment incentives for parents”. Costs of childcare are also rising in the UK. The Department for Education’s annual Childcare and Early Years Survey of Parents has found that almost half (45%) of families earning under £10,000 per year found it difficult or very difficult to meet their childcare costs in 2021 – an increase from 32% the previous year (Department for Education, 2022).

For the poorest households they receive childcare support through Universal Credit.  Whilst government rhetoric has emphasised that parents can receive up to 85% of childcare costs under Universal Credit for many families this has not happened in practice.  This is because the level at which childcare costs are paid has been capped at a level set in 2005.  In addition, childcare costs were paid in arrears and so a parent needed to pay for childcare and then claim back that cost the following month.  This made the cost of childcare just too high for low-income families to both move into work or to progress to more hours of work. 

Meeting the upfront costs of childcare has been a significant issue for the women that Belina Grow work with in London. As one of Belina Grow’s advisers put it. 

“When a parent needs to find £700 to cover the upfront costs it makes it impossible for them to afford to move into work.”

So today the Chancellor has announced that the childcare caps under Universal Credit will be increased by nearly 50% and the payments will be paid in advance rather than in arrears.  This is good news for those on Universal Credit. It will for instance help the high number of single parents on Universal Credit (90% of single parents will be on Universal Credit when it is fully rolled out) to move into work or to take on additional hours of work.  It will crucially also help encourage economically inactive mothers in couples on Universal Credit to move into work.

Whilst the increase in childcare payments for Universal Credit are a welcome move in the right direction there are of course other ways that childcare needs to be improved for low-income households.  The complexity of the system including the free childcare offers also need to be addressed.  Whilst the Chancellor is going to expand the 30 hour free childcare offer to parents of one and two year olds this is not on offer to those parents who are in mini jobs, in training or who are job seeking work.  It would make more sense if the Chancellor wants to encourage low income parents, including main carers in couples and single parents on Universal Credit,  to train and to actively seek work or increase their hours if he opened up the provision more broadly.

So, in short the changes to childcare support under Universal Credit and the expansion of free childcare to one and two year olds are welcome. Whilst, an overhaul of childcare provision and costs do need a rethink what is being proposed is a step in the right direction.  For policy research folk like myself these have been long standing policy issues.  It is a great to see that this long fought for policy change is secured and that Politicians can listen and do the right thing.  A victory for common sense and for disadvantaged families across the UK.

We are awaiting details on the new responsibilities for families on UC for both parents to look for work – and to see if there is any change in the age of youngest child for job seeking requirements. We will keep you posted.