Families on Universal Credit can claim back more of the money they spend on childcare from Wednesday 28 June 2023 due to a policy intended to help more parents into work.

In this blog we explore how the policy will impact families across the UK. We find that while the policy will help families with children, fully funded costs would help more low income families into work.

Families on Universal Credit can get higher childcare support and upfront payments from Wednesday 28 June

In the 2023 Spring Statement the government announced that, from Wednesday 28 June, families on Universal Credit will be able to claim up to 47% more in childcare payments. Parents will be able to claim back up to £951 a month for one child and £1,630 a month for two or more children.

Childcare payment limits to 27 June 2023Childcare payment limits from 28 June 2023
Households with one child £646£951
Households with two or more children£1,108£1,630

This increase aims to ease the financial strain faced by families on low incomes by helping them into work, or to progress in work, in the knowledge that they are more likely to be able to afford high quality childcare.

Some families will also be eligible to receive one month of childcare upfront, instead of claiming it back later on. Families that currently receive childcare support through Universal Credit and that “significantly increase” their working hours will also be eligible to receive a portion of their childcare costs paid upfront.

A welcome increase to help parents entering work or increasing hours

An increase in childcare payments will help to address high childcare costs and support families into work. The government hopes to encourage more parents into work by paying for the first month of childcare upfront.

Looking ahead, the government has also unveiled a comprehensive plan to expand free childcare for working parents.

  • From April 2024: parents of two year olds get 15 free hours of childcare a week
  • From September 2024: parents of children aged between nine months old and school age also get 15 free hours
  • By September 2025: the government aims to provide a total of 30 free hours of childcare per week, ensuring affordable and accessible support for working families

Following the reforms, parents who either don’t need to work currently or work only part time will be expected to look for work when their youngest child over three is expected to work 30 hours, an increase from 16 to 24 hours.

The Chancellor

However low income families on Universal Credit may still have to pay for childcare

Families may still have to cover up to 15% of actual childcare costs because the current cap of 85% of the total cost of childcare that families can claim, up to the maximum shown in the table above, leaves a gap between what is covered and actual childcare costs.

The 15% of childcare costs that are not covered need to be paid for through employment earnings which reduces the economic benefits of work. Limiting childcare support can:

  1. Prevent single-earner couples from working more. Parents living together are both expected to be employed to access childcare support.
  2. Prevent people on lower earnings or not working at all from accessing childcare support. This may exacerbate the stress of having to balance work and childcare
  3. Increase reliance upon friends and family or other informal childcare, creating a strain on these relationships and disadvantaging those without access to family support

A policy to cover 100% of childcare costs would better address barriers to work

Covering 100% of childcare costs would better encourage parents into work, even if their earnings are low.

  • Only 13% of Universal Credit households with children pay for childcare
  • Half of the households claiming UC have children
  • 101,600 households claimed the childcare element in July 2021, and around 9% claimed the full amount
  • Around 393,000 working households, in receipt of Universal Credit and with children under the age of five, are not currently utilising childcare services
  • Lower earning families may still struggle to find the 15% of childcare costs that aren’t covered
  • Take-up is much greater when a service is free than when paying a heavily subsidised amount

Our research was covered in the Sun newspaper.

Upfront payments for childcare have been a problem for day one. The Sun’s campaign has helped to push this up the priority list. With the cost of living skyrocketing these payments will help people in work to stay in work and make it easier for out of work parents to be better off in work. Support also needs to be designed to reach as many people as possible. We believe fully funded childcare costs would help more families on low earnings into work.
Deven Ghelani, Director and Founder of Policy in Practice

Using Family Resources Survey (FRS) data Policy in Practice analysed the current landscape of childcare use among Universal Credit claimants.

We found that around 10% of Universal Credit households with children pay for childcare. Even among Universal Credit households where at least one parent is working the percentage of parents paying for childcare is strikingly low at 13%, equivalent to roughly 123,000 households.

It is worth noting that until recently families with at least one parent at work were eligible for the childcare element. However, now childcare support on Universal Credit is available to couples with children only where all adults are employed, with some exceptions.

393,000 eligible families on Universal Credit are missing out on childcare payments

The government’s expansion of childcare support for Universal Credit claimants marks a step to promote workforce participation. It will provide further support to households affected by the rise in the Administrative Earnings Threshold (AET) announced in the Spring Budget.

The revised limits on monthly childcare cost claims will undoubtedly ease the financial strain for households that are already opting for formal childcare services and may allow some households to access better quality childcare. Approximately 10% of households on Universal Credit will experience an enhanced level of support.

However, there are approximately 393,000 working families on Universal Credit with children under the age of five who are not currently utilising childcare services.

These households may not be accessing formal childcare services because of the cap on maximum support. As the benefits system is only paying for 85% of a set maximum cost, they may not afford to pay the uncovered portion of care, or lack the savings to pay for the upfront cost of childcare.

Additionally, most areas of the country have a limited offer of childcare providers. It is likely there are not enough spaces for households seeking formal childcare options. These providers may also cost much more than the free funding available via the maximum childcare support. Lower earning families might continue to rely on informal childcare and not feel the impact of this policy change.

Will your family be better off with the expansion of childcare support?

Our recent report, Putting the Universal in Universal Credit, shows that 300,000 families with children and paying high rents are missing out on Universal Credit. Many of these households, particularly those on higher earnings, might also be eligible for the new childcare support payments.

The policy may help more families by encouraging them to access unclaimed support

The change in policy only looks at Universal Credit households, and the analysis excludes households accessing free childcare, meaning these figures do not include all children in the country accessing childcare.

  • All three and four year olds are eligible for at least 15 hours of free childcare, increasing to 30 hours if their parents are working
  • Low income families with two year olds are entitled to 15 hours of free childcare

Lowering the cost of childcare for families on Universal Credit may encourage more families to take up support, so policy impacts may be greater than the figures shown above.

Councils can identify households eligible for free and subsidised childcare by using their benefits administration data to provide wraparound support for families with children. Data analysis can identify those families who are eligible for free childcare by segmenting into relevant age groups such as 18 months to two years, two years old and three to four years old.

A recent webinar with Haringey Council showed how they are analysing their data using the Low Income Family Tracker (LIFT) platform to increase take up of the free two year old childcare. They increased take up by 10% and identified over 1,000 families who were eligible for support. In some cases, the councils used their data to bypass the application process and provide households with ‘golden tickets’ to nursery. Watch the webinar on demand or contact us to learn more.

Councils can proactively ensure families on Universal Credit have access to support for childcare

As the policy takes effect from Wednesday 28 June 2023 it is essential that good quality childcare is available locally and, secondly, that families on Universal Credit are encouraged to take up the newly available extra support for childcare so that more low income families are helped into work.

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