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Scrap upfront childcare fees for families on the lowest incomes – it’s the poverty premium in action

3 min read

After housing costs, childcare is the biggest single expense facing parents with young children. In some cases, it costs even more than their mortgage or rent. Like thousands of parents in England with pre-school age children, as I rush out the door, packed lunches, coats, and toys in hand, I think to myself: there’s got to be a better system than this.

As a mum, and as someone working at Save the Children UK, I’ve heard from countless parents struggling to get into work, stay in work and progress and take promotions because it doesn’t make financial sense to work and pay for someone to take care of your child.  

For parents on higher incomes, they can use the UK government’s relatively simple tax-free-childcare system. Fees may still be the most expensive in Europe, yet for every £8 the parent or carer pays in, the UK government tops it up by £2. After a couple of clicks, the money goes straight to the childcare provider.

If you’re on Universal Credit however, you become embroiled in the upfront fees system that leaves parents feeling miserable. For those that use this support, it can push them into debt, as MPs concluded in their damning report on Universal Credit and childcare released last December. Others tell us it stops them from working.  

So we’re calling on the Chancellor to scrap it at the Spring Budget. Our latest research with YouGov gives us faith that reforming this system would get more parents who want to work, into employment.  

The current upfront fees process involves the government paying for up to 85% of childcare costs if you are working and on Universal Credit. However, you must pay the nursery or childminder bill first yourself, and then claim it back at the end of the month to be reimbursed, by which point you then need to pay next month’s bill – so you’re “robbing Peter to pay Paul” as one mum told us. 

Even in the mildly better economic times of the past few years, who has a spare £1000 lying around to pay for childcare upfront? Asking parents who are contending with higher fuel and food bills in a punishing cost of living crisis, to find hundreds of pounds for childcare before they’ve even started a new job, is just nonsensical. It’s the poverty premium in action – the poorest families facing the biggest hurdles. Those who do pay it have told us they’ve gone into debt that it can take months to claw their way back from that. 

Our recent research found that a quarter of parents surveyed by YouGov who receive Universal Credit would move into employment if childcare was made more affordable for them and 41% who are already working said they would increase their hours. One of those ways of making it more affordable is scrapping those upfront costs. We know that for those with young children who want to work, it can give people a significant boost to their income, opportunities and confidence, and this must be something the government would surely want to see. 

Instead of upfront costs, ministers could introduce a grants-based scheme for the first month, like that on offer in Northern Ireland, or expand and reform the tax-free childcare offer so that it subsidises childcare costs for all parents, including those on Universal Credit. Those are two fair solutions that would end the disparity between those on the lowest incomes and those on higher incomes when it comes to childcare. 

Long term this broken system needs the investment to move towards what we’re calling a childcare guarantee, universally accessible, affordable childcare from the end of parental leave to the end of primary school. But removing upfront fees would be a worthy start. 

Becca Lyon is head of child poverty at Save the Children UK.

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Read the most recent article written by Becca Lyon - Gordon and Suella united on child poverty? Something’s shifting