Overview
Drawing on interviews with 22 low-income parents in receipt of Universal Credit (UC), the University of Bath's Institute for Policy Research explored how they manage childcare costs, as well as their broader experiences of childcare and work conditionality requirements. The interviews were conducted as part of a wider qualitative longitudinal research study, funded by abrdn Financial Fairness Trust, exploring the experiences of working claimants on UC.
Support for childcare in the UK is complex and partial and provision is geographically patchy. There are several streams of support available – some financial, some in-kind, some universal, some means tested – as well as differences across the devolved administrations. There have been recent increases to the free hours of childcare for working parents that have been generally well received. But there remain issues for parents and providers. For example, the increased free childcare hours often do not address working parents’ needs or cover the full cost of childcare. Low-income parents can therefore find themselves having to reclaim additional childcare costs through Universal Credit, which can be complicated and insufficient. Parents may also face wider issues with childcare availability and finding suitable care that meets their children’s needs. At the same time, there are stricter work conditionality rules for parents on Universal Credit. Childcare providers, too, face significant challenges in meeting the rise in demand for childcare places as a result of the expanded free hours offer.
Support for childcare in the UK is complex and partial and provision is geographically patchy. There are several streams of support available – some financial, some in-kind, some universal, some means tested – as well as differences across the devolved administrations. There have been recent increases to the free hours of childcare for working parents that have been generally well received. But there remain issues for parents and providers. For example, the increased free childcare hours often do not address working parents’ needs or cover the full cost of childcare. Low-income parents can therefore find themselves having to reclaim additional childcare costs through Universal Credit, which can be complicated and insufficient. Parents may also face wider issues with childcare availability and finding suitable care that meets their children’s needs. At the same time, there are stricter work conditionality rules for parents on Universal Credit. Childcare providers, too, face significant challenges in meeting the rise in demand for childcare places as a result of the expanded free hours offer.
Childcare reform
In April 2024, the previous Conservative government increased childcare support for working parents in England by extending the free childcare hours, previously only available for working parents with three- and four-year-olds, to two-year-olds, together with an extension to children from the age of nine months old from September 2024, and plans to increase investment in wraparound care.
The Labour government elected in July 2024 has committed to supporting these pledges. Although free childcare hours are welcomed by many, they were introduced at the same time as a reduction in other areas of early learning and childcare support, including cuts to funding of Sure Start centres, which decreased by two-thirds between 2010 and 2022. Sure Start centres have been found to have many positive outcomes for disadvantaged children. However, the focus on recent childcare reforms have been about encouraging families to work/work more, fuelled, in part, by concerns about rising labour market inactivity. There has therefore been less focus on child development and reducing inequalities in children’s life chances.
The Labour government elected in July 2024 has committed to supporting these pledges. Although free childcare hours are welcomed by many, they were introduced at the same time as a reduction in other areas of early learning and childcare support, including cuts to funding of Sure Start centres, which decreased by two-thirds between 2010 and 2022. Sure Start centres have been found to have many positive outcomes for disadvantaged children. However, the focus on recent childcare reforms have been about encouraging families to work/work more, fuelled, in part, by concerns about rising labour market inactivity. There has therefore been less focus on child development and reducing inequalities in children’s life chances.
Childcare and Universal Credit
For low-income families, reclaiming additional childcare costs through UC involves paying the costs upfront and then reclaiming them back each month through the online system, after the childcare has been provided. Childcare fees are reimbursed up to 85 per cent of costs up to a maximum of just over £1015 per month for one child and £1739 per month for two or more children. However, the amount that parents are reimbursed for their childcare is included in their overall Universal Credit award, not separately identified or ring-fenced. The contribution they get is also means tested. This means that the total Universal Credit payment, including the amount for childcare, can go up or down, depending on household earnings, as the overall award is reduced by the 55 per cent taper rate for earnings above the work allowance. Parents, therefore, do not receive the full amount of childcare costs they have paid for.
Conditionality
All claimants of Universal Credit must agree to, and sign, a ‘claimant commitment’, which sets out their obligations in relation to work, backed up by financial sanctions for those who are judged to have failed to comply. For parents, there have been significant changes over recent years regarding the conditionality requirements they are expected to meet. Since autumn 2023, the number of hours that lead carers with a youngest child aged three are expected to work, or look for work, has increased from 16 to 30 hours a week. Parents are therefore facing complex work-childcare decisions within this new conditionality context.
Other issues for low-income families
Childcare costs support is one of a number of aspects in the design of Universal Credit and the means-tested benefit system more broadly, which can be a barrier to parental employment and increasing hours of work. For example, in couple households with children, there is no work allowance for second-earners, who are most typically mothers. Furthermore, as earnings increase, households can find themselves above the earnings thresholds for entitlement to various forms of additional means tested support such as Council Tax Reduction, prescriptions and free school meals.
Key recommendations
- Make pre-school childcare for working parents on Universal Credit fully free and pay childcare costs directly to providers.
- Reform of the childcare element of Universal Credit.
- For school-age children, expand the entitlement to wraparound care costs support in UC to clubs that are not Ofsted or equivalently registered.
- Provide universal childcare for two-year-olds.
- Re-establish Sure Start to provide community-based childcare and holistic family support.
- Develop a childcare workforce strategy.
- Reform employment support and conditionality rules for parents.
- Reform of the childcare element of Universal Credit.
- For school-age children, expand the entitlement to wraparound care costs support in UC to clubs that are not Ofsted or equivalently registered.
- Provide universal childcare for two-year-olds.
- Re-establish Sure Start to provide community-based childcare and holistic family support.
- Develop a childcare workforce strategy.
- Reform employment support and conditionality rules for parents.
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