Early Warning System report on universal credit and childcare costs
The Early Warning System was developed by CPAG in Scotland to collect and analyse case evidence about how changes to the benefit system are affecting the wellbeing of children, their families and the communities and services that support them. The case studies help us develop an in-depth understanding of the impact of changes to the benefit system and identify how policies and services in Scotland can continue to contribute to the delivery of better outcomes for children.
Financial support to low income families to pay for childcare through working tax credits is being replaced by the childcare element of universal credit. Families already receiving tax credits do not have to do anything just now and will continue to remain on tax credits until they are invited to claim universal credit. However, people making a new claim, who need assistance with childcare costs, will have to claim universal credit (UC).1
With less than 60% of UC claimants with a childcare element being paid on time and accurately,2 it is vital that childcare providers are informed and in a position to support parents and carers in relation to UC in order to sustain their service’s income and protect their service users and staff.
HOW IS UNIVERSAL CREDIT DIFFERENT TO TAX CREDITS?
- Claims are made and maintained online.
- There is no minimum hours of work requirement, however for couples, both partners must work with limited exceptions. Costs may not be covered if the decision maker decides an amount is excessive in relation to the hours worked.
- The maximum help available for childcare costs in 85%, an increase from 70%. The maximum available for one child is £646.35 a month and for two or more children £1108.04 a month.
- Childcare costs must be reported, and in some cases evidenced, on a monthly basis. Late reports may be accepted in some cases and the government has recently announced that childcare costs reported within 30 days of the end of the assessment period will now be included.3
- You can claim childcare costs if you have an offer of a job starting within a month.
- You can claim childcare costs in the month after stopping work, to allow you a chance to find another job without losing your childcare place.
DEPOSITS AND PAYMENTS IN ADVANCE
Some childcare providers require a deposit and/or payment in advance when a childcare arrangement is entered into. The Government has confirmed that when someone is moving into work they can request help with upfront costs from the Flexible Support Fund – a discretionary fund operated at a local level.4 Payments from the Flexible Support Fund will be paid direct to the childcare provider and are not repayable. However parents are not always advised about the availability of the Fund. The Secretary of State recently told the Work and Pensions Select Committee that all claimants will receive upfront support with their first childcare payment; it is not clear whether this is to be delivered entirely through the Flexible Support Fund.
| A client with two children started work, put her children into nursery and claimed UC. She wasn't able to pay her childcare costs for the first three months, but was then able to pay £2295 in one instalment to cover ongoing payments and arrears. She provided the receipt to UC, but was correctly advised that the maximum childcare costs that can be recouped in one assessment period is £1108.04. However the client should have been advised that she could request support from the Flexible Support Fund, at the start of the claim and when she was told that she would be able to recoup a sizeable amount of the costs she had already paid. The Flexible Support Fund should be available in the first 26 weeks of someone starting employment. #6368 |
The Flexible Support Fund may help parents who are moving into work, but not parents who are changing childcare provider, for example because they are transitioning from nursery to before and/or after school care, or who are moving to another area.
The Government has confirmed that UC claimants will be able to receive a loan to pay for their childcare in advance, however the mechanism for this is unclear.5 Evidence from the Early Warning System highlights that claimants are already struggling financially as a result of repaying the loan (called an advance) that is available during the 5 week wait for the first payment of UC claim, especially when coupled with deductions for overpayments and other debts. Taking a loan to pay for upfront childcare costs is likely to exacerbate ongoing financial hardship.
| A couple have so many deductions coming off their UC that they cannot afford food and fuel, have received their maximum crisis grant entitlement from the Scottish Welfare Fund, have taken out pay day loans for essential day to day items and had to attend a foodbank. They have asked for their deductions to be reduced, but without success. #4473 |
At present parents can request a budgeting advance (loan) to help with upfront childcare costs, but this is not available to couples who have earned £3600 in the last six months, ruling out a number of people already in work, and may also be refused due to other debts and liabilities. The maximum advance of £812 may not be enough to cover the upfront costs charged. The budgeting advance system also does not appear well suited to providing ongoing support for claimants who struggle to pay upfront costs on an ongoing (rather than one-off) basis.
REPORTING AND EVIDENCING CHILDCARE COSTS
It is anticipated that some childcare providers will have to change their charging policies in order to align with UC.
In tax credits, claimants could estimate their childcare costs and confirm whether that was accurate at the end of the financial year. If there was a change of more than £10 a week this should be reported when it occurred to avoid over or underpayment. Claimants could then be asked for evidence of actual childcare costs paid at any time during their award.
In UC claimants must report and may be asked to evidence that they have paid their childcare costs each month before they can be reimbursed. This can represent a sizeable outlay for claimants before the money can be recouped. The recent announcement of 30 days grace will help people to avoid losing support with childcare costs due to late reporting,6 but reporting costs in a later assessment period of course means an even longer wait for payment.
| A lone parent failed to report all of her childcare costs on time and has not been paid for the periods that she was late in reporting. She is going to struggle to keep her childcare place and therefore her job. #91 |
Evidence that will be accepted that payment has been made includes:
- A letter headed invoice that is dated and annotated as being paid, or an accompanying bank statement (online banking screenshots will not be accepted).
- A bank or ATM statement which notes the date and amount of payment and the name of the childcare provider.
- A registered invoice receipt or handwritten receipt showing the childcare provider’s name (but only as a last resort).
| UC had been accepting invoices as proof of childcare costs but not requiring evidence that they had been paid, but are now, stating that they cannot accept invoices alone. #5688 |
Monthly reporting is a considerable change from existing practice and will often not align with childcare provider’s charging policies. For example:
Nursery A notes their charges in individual’s contracts between the service and the parent. Parents are asked to set up a standing order, pay in advance and will only receive a new contract if the hours they use, or the hourly rate, changes. There are no invoices or receipts, so parents may only be able to report their payment once they have received their bank statement causing a delay between payment and being able to evidence.
Out of school club B invoices parents every three months for the hours they have used. This would not align with reporting costs monthly and parents would be limited to monthly maximum for the period that they made the payment in.
Nursery C provides wrap around nursery care in addition to the Scottish Government funded hours. Parents are invoiced monthly in advance for all of the childcare hours they intend to use and are then reimbursed the equivalent of the free hour entitlement at the end of each term. |
None of these examples from parents using childcare, will assist parents to pay and report their childcare costs monthly.
| Client has been unable to pay her full childcare costs after the childcare element was not included in one of the UC payments because UC insisted she provide a letter from the childcare provider, even though she had already done so in the previous assessment period. UC can only pay 85% of what it is reported has been paid, so the client is stuck in a circle of being unable to pay her full childcare costs. #2277 |
The government’s own guidance suggests that while childcare costs need to be reported every month, this ought not to mean that claimants are required to evidence their costs each month when there has been no change in their childcare arrangements: “After the initial costs have been verified, the claimant will continue to report the childcare costs they pay but may not be asked to provide evidence. This is because the childcare costs have automatically been accepted.”7
However our experience suggests that in practice people are still told that they must not only report costs every month but also provide evidence to verify them – the law only says report every month.
CHILDCARE PROVIDERS ROLE AS AN EMPLOYER
It is possible that some childcare employees will be receiving universal credit.
UC claimants who are earning less than a full time national minimum wage may be expected to increase their hours of work or increase their rate of pay. Given the restricted operational hours of some child care providers, particularly before and after school clubs, staff claiming UC may find themselves under pressure to seek additional, or alternative, employment.
| A UC claimant, a lone parent of a two year old, works 15 hours a week as a nursery assistant and is studying 20 hours a week for a degree in childhood practice. When she qualifies this will allow her to attain a registered childcare post, with better prospects and earning potential. The client's new work coach told her she will be expected to increase her working hours to 30 hours a week when her daughter turns three, which would not be compatible with the client's studies. UC's own guidance states that the expected hours for the main carer of the 3-4 year old is 16 hours a week, so she is being asked to do more than may normally be required. There isn't any specific provision allowing the client to have her studies counted towards her conditionality, but she could reasonably ask for it to be counted as work preparation, but this would be at the work coach's discretion. #5657 |
CHILDMINDERS
Childminders may be in the position of both being in the position of being a childcare provider and a self-employed UC claimant.
Self-employed people, who are outwith the first year of starting their business will have a minimum income floor applied to their universal credit calculation. This is an amount they are assumed to have earned whether they have or not. Work coaches have discretion about how much the minimum income floor should be depending on individual circumstances. Childminders are limited in the amount they can earn because they are restricted number of children they can look after and some will have their own children taken into account in that calculation.
A childminder had to apply for UC after her husband died. She works 34 hours a week. She had the minimum income floor applied at a rate that is higher than she earns. Her work coach told her to increase her hourly rate, but she already charges £4.50 which is higher than the local average.
The old income support and income-based jobseekers allowance took account of this situation by only counting one-third of childminders’ earnings as profits. This was an effective incentive and important support for childminders.
ADMINISTRATION ERROR AND MISINFORMATION
The Early Warning System consistently receives a high number of cases that highlight issues not just with benefit policies, but with the way benefits are administered. Common issues include claimants being:
- underpaid due to DWP error;
- overpaid due to DWP error – which the claimant then has to be paid back; or
- given incorrect information about whether they are entitled or not.
The case evidence regarding UC and childcare is consistent with this trend. Errors with UC childcare costs can jeopardise claimant’s childcare arrangements.
| A client has been struggling to pay her childcare cost since she has transferred from tax credits to UC. Childcare costs do not appear to have been included correctly in her award despite raising the issue repeatedly in her online journal as instructed. Client needs her son's nursery place so she can work and has been paying nursery instead of her rent and accruing rent arrears as a result. #Mii253 |
| Client was reporting and receiving her childcare costs in UC without problem during term time, but when the cost increased over the holidays, UC appear to have calculated the costs incorrectly and have continued to pay the term time amount despite the higher amount having been reported and verified. #18931 |
| As a result of a lone parent's employer reporting the wrong amount of earnings, the client has been overpaid UC, which she now has to repay and has had two months where she has not been paid in UC at all. Consequently she is now in arrears with her childcare costs and her rent. #5294 |
| Client was incorrectly advised by the UC helpline that she could not claim UC childcare costs for the six hours of childcare she pays for on top of the 16 hours free that she receives, because she is receiving free hours. #2811 |
| When a lone parent notified UC that she had lost her job, but was still liable for child care for a further four weeks, she was told that he childcare element would end immediately when in fact it can run on for another month after employment stops. #1978 |
GAPS IN PROVISION
In order to claim childcare costs, both members of a couple must be working unless there is a benefit decision that one of them is too ill or disabled to work just now, or is caring for a severely disabled person. There are case studies that highlight instances where childcare is required but will not be financially supported by UC.
| A 17 year old stayed on at school after having a baby. She lives with her partner who works full time. They have been awarded UC for housing costs and the child element, but not childcare costs because only one of the couple is in work. #1314 |
| Client is unable to claim childcare costs because her partner is not working (or otherwise exempt), but he is required to carry our community service on the days that she is working. #4766 |
RECOMMENDATIONS
FOR CHILDCARE PROVIDERS
- If not already doing so, charge for childcare monthly.
- Be prepared to provide receipts as soon as payments have been made.
- Make links with local advice providers so you can refer parents for advice where issues arise.
FOR DWP
- Provide and promote clear information about help that is available in relation to upfront childcare costs.
- Provide clear information about what evidence is required to report childcare costs.
- Make links with the childcare sector to publicise the changes in practice that may be required to align with universal credit.
- Publish information and guidance about the greater flexibility in relation to late reporting and streamlined decision making hoped to be implemented from the autumn.
- Introduce a simpler way for childminders’ earnings to be calculated for UC as they were for income support and income-based jobseeker allowance.
- Introduce guidance for work coaches around the particular earnings restrictions faced by childminders and child care workers so that appropriate work related requirements or minimum income floor can be set.
- Improve accuracy and speed of payments in relation to childcare costs.
- Ensure staff are adequately trained in relation to entitlement to the childcare element of UC.
- Provide non-repayable support to all parents claiming UC in relation to upfront childcare cost.
FOR SCOTTISH GOVERNMENT
- Highlight the potential impacts of universal credit to the childcare sector and encourage them to engage with DWP and local advice providers.
For more information on this report please contact:
Kirsty McKechnie
Welfare rights worker (Early Warning System)
0141 611 7091
[1] With the exception of people who are receiving an additional amount in their current benefits because they are severally disabled.
[4] https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/2422/242202.htm
[5] https://appguniversalcredit.org.uk/updates/press-release-uc-appg-responds-to-childcare-announcement/
[7] http://data.parliament.uk/DepositedPapers/Files/DEP2019-0465/Childcare_costs_v11.0.pdf