Universal Credit, childcare and in-work progression

On Wednesday I went to the ERSA annual conference and heard many interesting and inspiring stories of great projects helping people into or to sustain work. I was struck though, by the number of times Universal Credit came up as a barrier to work, especially for groups with more challenges. Universal Credit’s big selling point is that it makes it easier to get in work benefits, as your entitlement continues once you find work, just at a different rate. Universal Credit slowly tapers away at a steady rate as earnings increase. There is no need to sign off Jobseeker’s Allowance and make a claim to Working Tax Credit, you just receive Universal Credit all the way through your progression from unemployment to work.

So, if the core concept works well, why is Universal Credit a barrier to in-work progression? There are a number of reasons why this might be but I want to focus on one crucial one here – childcare.

Universal Credit expects a high degree of market engagement from parents. The standard assumption for Universal Credit claimants is that they will work, or look for work, for 35 hours a week. For primary carers of younger children this can be reduced to 25 or 16 hours a week. Crucially this expectation starts when the youngest child reaches age three. We’ll leave aside for now the issue of whether mandating work activity for parents of young children is a good idea. However, the basic concept of Universal Credit, that benefit entitlement goes down gently as the claimant enters employment, works well here. Also, Universal Credit can pay for some childcare costs to help that entry into work. Universal Credit covers 85% of childcare costs paid out by the claimant. This compares well with the old system, as Working Tax Credit only covered 70% of childcare costs.

However, there is a maximum cap on the amount of support that can be claimed towards childcare. For two or more children, the most help that Universal Credit will pay out for childcare is £1,108 per month. This should be adequate for covering part time work but, as hours increase and childcare costs rise, this cap can easily be reached. This is especially true of high cost childcare, in London or other expensive areas.

Lone parents, especially, will often require childcare costs to be met through benefits in order to meet the mandatory work requirements In Universal Credit. The essential structure of the calculation encourages entry into work but the cap on childcare costs makes in-work progression difficult to achieve. Unless the cap on childcare costs is raised or removed, or more free childcare is provided nationally, the progression in work for parents, especially lone parents, will continue to be a struggle.

Dan Rust is Founder and Director of Turquoise Training and Consultancy and guru on all things Universal Credit. There’s still a few places left for next week’s training sessions ‘Universal Credit an Essential Update for Frontlnie Advisers in Manchester (3 December) and London (4 December). Check out the events pages  or get in touch with the events team for more information via events@ersa.org.uk or 020 3757 9415. 

@danielrust 
@Turquoise_TC