Map and calculate childcare support reductions under Universal Credit

Posted 10 September 2012, 0 comments

By Sam Royston, Policy Adviser From our Policy team Follow @@sam_royston

The new Universal Credit system is intended to help low-income working families, but our policy adviser finds it having the opposite effect for the most poor.

The introduction of Universal Credit means significant changes to childcare support for working families. While some will be helped, vital support could be cut by thousands of pounds a year for approximately 100,000 of the poorest working families.

Our new report, The Parent Trap: Childcare cuts under Universal Credit, details the likely effects of changes to the benefits system when Universal Credit is introduced from late 2013. The potential reduction in support is very significant: 100,000 families stand to lose as much as £4000 a year in help with childcare costs.

We created two tools to illustrate the extent of these changes:

• On our map you can see the distribution of these changes across England.
• You can use our calculator to see what the changes mean for many of the most vulnerable families in England.

Very poorest working families most likely affected

In addition to the childcare support through the tax credit system, some families also receive  up to an additional 26% more in childcare support for childcare costs through the Housing Benefit and Council Tax Benefit systems.

What is most worrying about this change is that, it is the very poorest working families that are most likely to be affected as they are more likely to be on Housing Benefit. This loss could easily mean the difference between making work pay and finding employment unsustainable.

How Universal Credit reduces support

Under the new Universal Credit benefit, support through the current benefits and tax credits system will be replaced by support through a ‘childcare element’ of Universal Credit. This childcare element is planned to cover 70% of childcare costs per week, up to £175 for one child or £300 for two or more children.

But The Parent Trap reveals that crucial support in addition to what these families receive under the tax credit system, which covers up to 26% of childcare costs through Housing Benefit and potentially Council Tax Benefit, will be lost under the new system.

Government statistics show that around 100,000 families (about 20% of those who receive help with childcare through the benefits and tax credits system) receive this additional support.

For households that only receive help with childcare through tax credits, the change makes no difference. They will continue to have 70% of their childcare costs provided. And more generous hours rules for families not currently working enough hours to be entitled to childcare support through tax credits mean some families will gain additional entitlement to childcare help under Universal Credit. (You can use our calculator to see what the changes mean for those receiving additional childcare support under Housing Benefit and Council Tax Credit.)

Where will people be most affected in England?

Our new map illustrates the proportion of families receiving help with childcare costs through tax credits under the current system who will see reduced support with childcare as a result of the loss of the Housing Benefit disregard under the Universal Credit.

These are families with all parents currently working at least 16 hours a week, and currently receiving childcare tax credits, housing benefit and council tax benefit.

The map also shows the estimated number of households affected in each area. Families in southern England will be most affected because they generally face higher housing costs than in other areas of the country

Undermining support for the very poorest working families

The whole point of introducing Universal Credit was to provide more support for the very poorest working families, enabling them to make ends meet and to ensure they are able to make work pay. However, this change to childcare support threatens the very cornerstone of the reforms.

With the details of Universal Credit being debated and voted on this autumn, the government urgently needs to reconsider how they can best focus support with childcare costs under the new system. In the end this means investing more money to make the system work.

Raising the childcare element of Universal Credit from 70% to 80% would go some way to ensuring that work always pays for the poorest working families.

By Sam Royston, Policy Adviser

Read more and take action

• Read our press release about The Parent Trap: Childcare cuts under Universal Credit
• Read The Parent Trap: Childcare cuts under Universal Credit
• Join Fair and Square, our campaign to ensure all children in poverty receive a free school lunch

Childcare cost calculator

Under Universal Credit, low-waged working parents receiving help with childcare under Housing Benefit and Council Tax Benefit will lose this key element of their childcare support. Through our childcare cost calculator, you can see what this means in pounds and pence for the families affected.

(Note: The calculator only shows the most a family could lose. The impact will vary depending on household income.)

Return to the beginning of this page.