A new report by the Institute for Policy Research (IPR) has revealed that the Universal Credit childcare scheme is leaving many low-income parents worse off, despite offering to cover up to 85% of childcare costs. The study highlights issues with upfront payments, delayed reimbursements, and inconsistent support, making it difficult for parents to manage childcare expenses while working.
How the Universal Credit Childcare Scheme Works
Under the Universal Credit childcare scheme, parents can claim back up to 85% of their childcare costs each month. The current maximum amounts are:
- £1,014.63 per month for one child
- £1,739.37 per month for two or more children
Parents can only claim reimbursement after paying for childcare upfront, meaning they must first cover costs out of pocket before receiving support.
While this system is designed to help working families, the IPR report finds that it is causing financial strain, particularly for those on low incomes.
Key Problems with the Universal Credit Childcare System
1. Delayed Reimbursements Create Financial Pressure
One of the biggest issues is the long waiting period between paying childcare providers and receiving reimbursement. Since Universal Credit payments are made monthly, parents who pay for childcare in advance (such as a full-term of after-school clubs) may not see the full reimbursement for several months.
For example, one parent in the study reported having to pay for a six-week after-school club upfront but only getting reimbursed for the weeks that fell within each Universal Credit assessment period. This resulted in a two-month delay before receiving the final reimbursement.
2. Monthly Earnings Affect Childcare Support
Universal Credit childcare support is means-tested, meaning the amount a parent is reimbursed changes depending on their earnings each month. This makes it difficult for families to budget and plan their finances.
If a parent earns slightly more in one month, their childcare reimbursement may be reduced, leaving them struggling to cover costs.
3. Impact of Shift Work on Childcare Costs
For parents working irregular or shift-based hours, the current system can be even more problematic. If a parent’s shifts span morning and afternoon nursery sessions, they may need to pay for extra childcare hours they do not actually use—further increasing their costs.
Even though these costs are theoretically reimbursable, the delays and shortfalls in payments still leave parents facing financial hardship.
4. Lack of Free Hours & Limited After-School Care
The study also found that insufficient free childcare hours, added provider fees, and a lack of after-school and holiday club options make it hard for working parents to balance jobs and childcare.
Parents facing pressure from the Department for Work and Pensions (DWP) to increase working hours found that the lack of affordable childcare made it nearly impossible to take on extra shifts.
Calls for Reform: What Needs to Change?
The report urges the UK government to reform the Universal Credit childcare system to:
Cover 100% of childcare costs – Instead of 85%, so that parents aren’t left out of pocket.
Provide direct payments to childcare providers – This would remove the need for parents to pay upfront and wait for reimbursement.
Expand free childcare support – Including clubs that aren’t Ofsted-registered, such as sports and drama clubs, to offer more flexible childcare options.
Dr. Rita Griffiths, Research Fellow at the IPR, said:
“Current childcare policies are forcing families to make impossible choices between work and care. These reforms are essential to prevent families from being trapped by high childcare costs and bureaucracy while ensuring every child has access to quality early years education.”
Dr. Marsha Wood, Research Associate at the IPR, added:
“The government has promised to ‘make work pay’ through its New Deal for working people and increases in the National Minimum Wage. However, this goal will only be achievable if low-income families have access to affordable, high-quality childcare.”
The Universal Credit childcare scheme, while intended to help working parents, is currently leaving many families worse off due to delayed payments, upfront costs, and a complex means-testing system. The Institute for Policy Research is calling for urgent government reforms, including fully covering childcare costs and directly funding providers, to ensure that parents can work without financial strain.
As the cost of living rises, these changes could provide much-needed relief for low-income families, allowing them to balance work and childcare without financial uncertainty.
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FAQ’s
What is the Universal Credit childcare scheme?
The Universal Credit childcare scheme helps low-income parents claim back up to 85% of childcare costs, but parents must pay upfront before getting reimbursed.
Why are parents struggling with Universal Credit childcare support?
Parents face delays in reimbursements, upfront payments, and fluctuating support based on monthly earnings, making it hard to budget for childcare costs.
How much can parents claim under Universal Credit childcare?
Parents can claim up to £1,014.63 per month for one child or £1,739.37 for two or more children, but must cover costs upfront before being reimbursed.
How does shift work affect Universal Credit childcare payments?
Shift workers may end up paying for extra childcare hours they don’t use, as their schedules often require them to book full nursery sessions.
What reforms are being proposed for Universal Credit childcare?
Experts recommend covering 100% of childcare costs, providing direct payments to providers, and expanding free childcare options to reduce financial strain.
