Judge rules that Universal Credit rule on upfront childcare fees is illegal

The high court has ruled that the requirement to pay childcare costs upfront before reclaiming them through Universal Credit indirectly discriminates against women.

In a case taken by single mother Nichola Salvato, the court ruled that the Proof of Payment rule is also irrational.

Nichola claimed the rule had forced her into debt and to reduce her working hours in addition to causing her huge stress. She could not afford the £377.40 of upfront childcare costs and had to borrow the money. The requirement that she pay childcare costs before she could claim them back through Universal Credit meant that this situation continued in the months that followed and gave rise to what she described as a “cycle of debt where I was constantly owing childcare as well as loan providers and struggling to find the money to cover payments”.

Her legal challenge was supported by Save the Children, Gingerbread, the Professional Association for Childcare and Early Years (PACEY) and the National Day Nurseries Association (NDNA). Their evidence supported Nichola’s case that payment for childcare fees upfront was vital for working parents and childcare providers alike and that the current system puts families in significant hardship and debt. Their evidence also showed that the payment system was a barrier to working and progressing in work for single parents and single mums in particular.

Government lawyers argued that the Proof of Payment rule had been put in place to reduce error and fraud, which had been a major problem under the legacy tax credits system.

However, Mr Justice Chamberlain said: “It is not obvious why a system of awards based on liability to pay (evidenced by an invoice) would be any more likely to result in error or fraud than a system based on actual payment (evidenced by a receipt).”

He concluded that the Proof of Payment rule for childcare has disproportionate prejudicial effects on women in two ways. Firstly, the decision to make eligibility for the childcare costs but not the housing element of Universal Credit dependent on proof of payment adversely affects all those in principle entitled to the childcare element, of whom more than 80 per cent are women. Secondly, the proof of payment rule has a greater adverse effect on women than on men “because women as a group earn substantially less than men as a group”.

Nichola said: “I’m so very pleased that the judge has ruled that the way that childcare costs are administered through Universal Credit at the moment is unlawful and I really hope that the DWP recognise that a speedy change to the system is going to have an enormous and very welcome impact on the lives of hundreds of thousands of lower income families across the country, the very group of people that the Government says it wants to help……the change really cannot come soon enough.”

The DWP is to appeal the ruling.

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