Parents say they are stuck on benefits because of a childcare funding trap that means they could lose cash if they earn more.
Working families on universal credit can get 85 per cent of their childcare costs reimbursed after paying up front.
But if their earnings rise enough to take them off universal credit, some parents move onto the tax-free childcare scheme where just 20 per cent of costs are covered – up to £2,000 per child each year.
Some even say they would be “better off” not going to work at all because they are getting in debt paying for nursery fees up front.
Ruth Talbot, senior policy and research Manager at the Save the Children charity, said childcare is “critical” for parents to work, but “the system is failing some of the most vulnerable children”.
Nearly half (46 per cent) of parents who use the universal credit childcare support also say it does not allow them to work extra hours, polling in a report shared exclusively with The i Paper found.
Many reported having to increase their credit card debt to pay for nursery bills up front, the research by the Early Education and Childcare Coalition and the London School of Economics’ Centre for Analysis of Social Exclusion found.
Parents also said they faced delays in getting the money reimbursed.
Researchers recommended replacing the universal credit scheme and the other childcare support for working parents with a single offer. This would remove the need for upfront payments and cover all of the poorest families’ childcare costs.
Because the level of funding would be gradually withdrawn as families’ income rises, such a scheme could be implemented without any additional public spending.
It would save the poorest working families £1,300 a year, analysis found.
Talbot added “schemes such as the universal credit childcare element don’t work”.
“The Government must simplify childcare support so that it works for all families, by removing upfront costs for those on low incomes,” she said.
‘Like trying to get blood from a stone’
One parent told focus groups they were returning to work and “having to put it on a credit card” – but even then there is a shortfall in the amount of money available, they claimed.
Parents can keep claiming universal credit while they work, but once their earnings reach a certain threshold their support, including the childcare reimbursement, is completely withdrawn.
“I’m potentially better off not going to work because I’m having to find money to pay for a nursery fee,” the parent said.
“I think [it is] fantastic putting the children into nursery because it’s for their development. But it’s not made easy for us to be able to go back to work or find a job within the hours that you’re entitled to. It just makes things a lot harder than needs be.”
Half of families (49 per cent) using the universal credit scheme also said it had not helped them reduce their levels of debt.
One mum planning a return to work said she did not have the money to pay her childcare costs up front, adding: “I want to try and find that job and be able to earn, but then we’re so, so limited.”
Another said she wanted to go back to her old job, but it was five days a week. She “would have been out of pocket” and would have had to find more money to cover the nursery fees.
“I had to reduce my hours and stay on universal credit,” she said. “That was the only option for me – single parent, dad that was not involved, my choice – but it was the only way I could get back to work.”
The monthly assessment period requires ongoing self-reporting of childcare costs, hours and earnings, and parents described submitting evidence, chasing missing payments, checking calculations and appealing decisions.
One parent who works freelance said: “I’m desperately trying to make sure I’m always
making the threshold because it can differ. And when I had four weeks of children being sick, it’s like, how am I going to make sure I still qualify when I come to my reconfirmation.”
One dad with two children said the system was like “trying to get blood from a stone”.
“It’s confusing and the fact that you have to sit there and apply and then wait for an extra two weeks or whatever it is,” he said.
One parent said it took “three or four months” to get reimbursed for their first full month of childcare bills.
“You’re still paying out and paying out, and then it took a while for it to catch up, and then you have more receipts, more receipts, more money back, and then all of a sudden it is delayed again,” they said.
A Department for Work and Pensions spokesperson said: “We are determined to break down the barriers that prevent people from returning to work, ensuring families can access the childcare support they need to build financial security.
“This builds on action we have already taken to help parents with upfront childcare costs, including extending support to those returning from parental leave, and through the Flexible Support Fund.”
Last year the Government said in its Budget that it would increase the maximum amount of childcare costs that can be claimed via universal credit by families with at least three children.
In its child poverty strategy published last December, the Government said it would expand eligibility to include parents returning from parental leave.