Child completes a puzzle

Why this week's boost to Universal Credit falls short for families

This week, thousands of working families across the country will see a boost in their incomes – particularly those on Universal Credit.

This is because last autumn the government announced new measures to increase the work allowances in Universal Credit by £1,000 per year, meaning that those on the new benefits system will be able to keep more of what they earn before their benefits begin to be withdrawn.

The government estimates that, through this reform, 2.4 million working families with children and people with disabilities will benefit by £630 per year. Along with the increases in the National Living Wage, National Minimum Wage and the personal tax allowance, this will provide a welcome helping hand to families who are struggling to make ends meet.

But despite these changes, families with young children are still losing out from a childcare system that isn’t delivering on its goals. Childcare costs have been increasing faster than earnings for several years, and parents consistently cite the high cost of childcare as the key barrier to working and to increasing their hours.

Childcare support through Universal Credit has the potential to help parents, but the system isn’t working.

Under Universal Credit, working parents can claim up to 85% of their childcare costs back – an increase from 70% under the old system. This is a crucial source of support for families, but analysis by Save the Children and the Centre for Social Justice shows that, even after the changes announced last autumn, Universal Credit still isn’t doing enough to make work pay for parents.

Even with this week’s boost, a parent with one child moving into part-time work is only £2.60 better off for every hour they work after paying for childcare costs – keeping less than a third of their hourly wage. And if that parent wants to increase their hours to work full time, that drops to £1.86 of every extra hour worked. That’s less than a quarter of what they earn.

In addition, the way the system works sets parents up to struggle from the outset. Under Universal Credit, parents are required to pay childcare costs upfront, before waiting up to a month to be reimbursed. This means parents can be faced with a bill of £1,000 or more to pay upfront – money that most families don’t have to spare.

Parents tell us they desperately want to work, but Universal Credit isn’t supporting them to do so. One mother told us:

“When I did a better off calculation, now Universal Credit is active in my area, we will be significantly worse off once I start working.

It is not that I don’t want to work. I have decades of experience and would love to re-enter the work place. The current system makes it impossible for anyone in my situation to do so, and the person who ultimately pays the price is – my son.”

Improving the system would play a key role in helping parents to move into and stay in work.

We’re calling for three important changes to childcare support through Universal Credit. We’re calling for childcare to be made free for the poorest families, to allow parents to keep more of their hard-earned cash to spend on family essentials. We’re calling for support to be paid upfront, so that parents aren’t faced with covering hefty bills from the start. And we’re calling for improvements to the information available, so that parents aren’t missing out on support they could be claiming.

It’s not right that parents who want to work and do the best for their children are being punished by a childcare system that fails to support them. The government must act to make sure that Universal Credit delivers on its potential to lift families out of poverty and ensure that all children get the best start in life.

To find out more and support our campaign to make childcare work for families, click here.

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