Can the Chancellor’s Spring Budget Reforms Fix Britain’s Broken Childcare System?

Posted in: Data, politics and policy, UK politics, Universal Credit

Dr Rita Griffiths is a Research Fellow at the University of Bath Institute for Policy Research (IPR). She is a Principal Researcher for the ‘Navigating monthly assessment in Universal Credit’ project and Co-Investigator of the ESRC-funded research project ‘Couples balancing work, money and care: exploring the shifting landscape under Universal Credit’.

With the intention to extend 30 hours of free childcare to working parents with children from the age of nine months, increased funding for nurseries and childminders, and more wraparound childcare at the beginning and end of the school day, Jeremy Hunt’s proposals could go a long way towards fixing Britain’s broken childcare system. The achievement of this laudable ambition will ultimately depend upon how quickly and sustainably the supply of childcare places will be expanded to meet the likely increase in demand, but today’s announcement prepares the ground for the completion of a new foundational building block of the welfare state. Although much of the funding for childcare and early years services has been cut since 2010, the commitment of £4.1 billion to extend 30 hours a week of free childcare to parents of under-three year olds is a major and unexpected step forward by a Conservative government. It steals Labour’s thunder in an area which the party had been planning to prioritise in its manifesto.

With the proposals to be phased in over a number of years, changes to the childcare offer in Universal Credit (UC) are meant to fill the gap. Here, the reforms fall a long way short of what low-income working parents need. To be sure, removing the requirement for parents to pay their childcare costs upfront is a clear improvement and may help to persuade some low-income parents, who would otherwise be unable to fund these costs, to move into work (although no detail has yet been provided as to how this will be achieved). But this reform will do little to help parents who are already working. Increasing the maximum amount that parents are able to reclaim in childcare costs each month may look generous, but working parents getting UC were already able to reclaim up to 85 per cent of childcare costs prior to the Spring Budget. Raising the ceiling (from £616 to £951 for one child, and from £1,108 to £1,630 for a maximum of two children) on the maximum amount that could be reclaimed in any one month could certainly help low-income parents living in London and other locations where the costs of childcare are excessively high. But, as several commentators have pointed out, such families represent only a small minority of families with children claiming UC.

In fact, our research with UC claimants showed that having to pay childcare costs upfront when a parent first moves into work, was only one of a number of barriers and difficulties with the childcare offer in UC.  A lesser-known aspect of UC childcare help is that, among those already in work, the amount parents actually get depends on monthly household income – meaning that the contribution they receive towards their childcare costs can fluctuate each month alongside changes in earnings. If the hours or earnings of one or both parents increase – for example if they take on an extra shift – this will reduce the amount refunded in childcare costs.

The impact of what is, in effect, a monthly means test in UC has received little coverage. In our research, fluctuations in the amount of childcare help parents were entitled to were hard to manage. The complex relationship between monthly earnings and benefit entitlement – made worse with two working parents (in couples, both parents need to be working to qualify for help) – made it extremely difficult to calculate the financial impact that working additional hours would have on the UC payment. The inclusion of the childcare contribution in the single monthly benefit payment could also obscure the amount of money they had actually been paid. Uncertainty over how much they would be refunded acted as a disincentive to working longer hours.

Most affected were women. In couples, they were more likely to be the recipient of the single monthly payment, so it was mainly women’s income which fell if their partner’s (or their own) earnings rose. Women were also generally responsible for paying for childcare, so drops in the UC payment could leave them out of pocket – still liable to pay the same level of childcare costs but with a reduced UC payment from which to do so. The difficulties of managing an unpredictable and unreliable payment towards childcare costs led some women to leave their jobs or reduce their working hours. Knowing that the UC payment received by their partner would be reduced or might cease altogether if they earned more could also disincentivise additional hours among ‘first’ or sole earners in couples.

The administrative burden of reclaiming and manging childcare costs each month also typically fell to women. Liability for paying childcare that was out of sync with the system of monthly assessment – for example, paying childcare weekly in advance, but reclaiming childcare costs monthly in arrears- was especially burdensome. Delays and errors in repayments, combined with the impact of monthly assessment, left some parents in debt. None of these issues were addressed in the Chancellor’s Spring Budget statement. This is largely because issues with the UC childcare offer speak to a wider set of issues hard-wired into the benefit’s design. Childcare entitlement is based on a monthly means test and payment is calculated in arrears. This cannot be changed without major structural reform.

In the short to medium term, changes to the childcare element of UC may not bring about the increase in parental employment that the Government hopes for. Particularly worrying in this regard are the ‘sticks’ that are being implemented alongside the childcare ‘carrots.’ Conditionality requirements for ‘lead carers’ (UC claimants with responsibilities for dependent children) who are working below the administrative earnings threshold (AET is the minimum amount a person needs to earn without having to regularly meet with a work coach) are set to ramp up.  An increase in the AET from 15 hours at the minimum wage to 18 hours will mean that any parent working less than 18 hours will be subject to work conditionality in the same way as unemployed people are – required to meet regularly with a work coach as well as take active steps to increase their earnings or find another job. The couple’s AET, where a second adult may not be required to look for work if their partner is working above the level of the AET, is to be removed entirely. The impact on the 700,000 parents who will have their work search and earnings requirements increased remains to be seen, but failure to comply will result in sanctions. With the introduction of 30 hours free childcare not currently expected until 2025 at the earliest, the next few years look set to be a difficult transition for some the country’s poorest parents and children.

Longer term, the next government – whether Conservative or Labour – will be left with an important task: consolidating the extension of childcare entitlements to create a wholly supply-funded universal early-years and childcare offer. To ensure this is not achieved at the expense of a reduction in quality, shifting resources for under-five year olds entirely out of UC would seem to be the most obvious and sensible thing to do.

All articles posted on this blog give the views of the author(s) and not the position of the IPR, nor of the University of Bath.

Posted in: Data, politics and policy, UK politics, Universal Credit


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