Universal credit childcare costs: up front and after

Dan Norris reports on developments regarding the way universal credit (UC) supports working parents with childcare costs.

Over the last year the Work and Pensions Select Committee and others have made a series of criticisms of the provision for childcare costs in UC. Particular attention has been given to the rules which (in effect) compel UC claimants to pay childcare costs up front, before waiting po- tentially until the end of the second full assessment period after the bill is paid to receive help via the UC childcare costs element.

The government’s response has been to refer claimants to the discretionary Flexible Support Fund (FSF). In January this year, then Secretary of State Amber Rudd told the Work and Pensions Select Committee that work coaches had the discretion to use the FSF to meet any childcare bills paid before the claimant receives her/his first wages.1Q157 at http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/work-and-pensions-committee/the-work-of-the-secretary-of-state-for-work-and-pensions/oral/104011.html

In September 2019, in a parliamentary written answer, Disability Minister Mims Davies explained that the fund could be used to meet up-front childcare-related fees, deposits, retainers andthe costs of taster sessions incurred by a UC claimant in the time between starting work and receiving the first wage packet.2https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2019-07-25/282562

DWP guidance is that childcare costs which are met by the FSF are not to be included in the calculations of UC childcare costs element: ‘Where a claimant has already received help for deposits and upfront fees through other DWP support, for example, Flexible Support Fund, these childcare costs can’t be claimed back.3http://data.parliament.uk/DepositedPapers/Files/DEP2019-0465/Childcare_costs_v11.0.pdf

This means that at the end of the assessment period in which the childcare was paid for and work began, the working parents’ entitlement to UC would not include an element for childcare costs (these bills having been met by the FSF). This approach means many claimants are left without additional UC to pay childcare costs incurred in the subsequent assessment period. Ineffect, the problem of paying for childcare up front would be moved forward one assessment period by use of the FSF.

It is unclear whether the FSF budget which this year fell by 10 per cent to £41 million, is sufficient to meet the demand for help with up-front childcare costs. In 2016/17, only 2.35 per cent of the FSF budget – £1.2million – was spent on childcare.

In testimony at the same January 2019 select committee hearing, UC Chief Executive Neil Couling explained that budgeting advances for full childcare costs in the forthcoming month were available to meet up-front childcare costs paid after payment of their first wages, so offering working UC claimants the prospect of an FSF payment for the first month’s childcare and a budgeting advance to pay for the next: ‘What we have been saying to our staff is that they can use the budgeting advance system to effectively loan money to the claimant, so they can pay the bill. When the universal credit adjusts – because it goes up a month later, in respect of that bill – they can repay their advance in that way.'4Q189 at http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/work-and-pensions-committee/the-work-of-the-secretary-of-state-for-work-and-pensions/oral/104011.html

Mr Couling’s testimony has been interpreted as meaning that a budgeting advance would be recovered in full from the first subsequent UC payment. However, CPAG has been assured by DWP sources that this would only occur if the claimant so wished and that in most cases a budgeting loan for childcare costs will be recovered over the usual 12- month period.

This assurance will be welcomed by many, as the alternative – recovery of the full budgeting advance amount from the subsequent UC payment – would mean childcare costs in the next assessment period would have to be met from a UC award which included both an additional childcare element and an equivalent or larger deduction to repay the full budgeting advance for last month’s childcare costs – in effect, rather than removing the need to pay up-front fees, once again moving it forward to the start of the next assessment period.

Budgeting advances are restricted to couples who earn under £3,600 and single people who earn under £2,600 in the previous six complete assessment periods, meaning they are not available to many working parents who increase their working hours or start a job after a short period of unemployment. Claimants who are repaying a budgeting loan will be unable to receive another (eg, if they face an up-front childcare bill when hours in a new job increase) until the first debt is cleared. Claimants must have been in receipt of UC, income support, income-related employment and support allowance or jobseeker’s allowance, or pension credit for six months. Advisers should remain aware that the cost of childcare provided more than two complete assessment periods after the assessment period in which they were paid for in advance are not eligible for UC childcare element.5Reg 34(A)(1) Universal Credit Regulations 2013, No.376

In a further development, the period in which the payment of childcare costs must be reported in order to ensure that a childcare cost element is included in the calculation of UC entitlement has been extended to the end of the assessment period after that in which the costs were was paid.

The rule change is effective from 16 October 2019: see the Universal Credit (Childcare Costs and Minimum Income Floor) (Amendment) Regulations 2019, No.1249. Previous rules had left parents who paid a bill toward the end of their assessment period with little time to report payment. Claimants will remain able to argue that there were ‘special circumstances’ delaying the reporting of costs under regulation 33(2) of the UC regulations if they miss the new extended deadline.

CPAG would like to understand more about how the DWP is helping with childcare costs and recovering any debt incurred as a result. If your client has received either an FSF payment or a budgeting loan for childcare costs, or has reported their childcare costs late, please contact our Early Warning System.