A single mother has called on the Government to urgently change a policy which forces parents to pay upfront for childcare costs after a High Court judge ruled that it unlawfully discriminates against women.
Nichola Salvato, who fell into debt trying to pay her childcare costs after she returned to work, brought a legal challenge against the “proof of payment” policy of only reimbursing the money to parents once it has been spent.
Currently the Department for Work and Pensions (DWP) will only refund parents and carers 85% of their childcare costs through their Universal Credit payments once it has received proof that they have been paid, rather than when they are incurred.
Ms Salvato, 49, from Brighton, East Sussex, tried to return to work full-time in her role as a housing association adviser once her daughter turned 10, but found herself relying on payday lenders to pay for care.
She suffered anxiety as she struggled to make childcare payments and eventually had to reduce her working hours.
She brought a judicial review against the policy, arguing that the money should be paid to parents in advance as long as they have proof that they are liable for the payments.
Ruling in her favour on Friday, Mr Justice Chamberlain concluded the policy has “disproportionately prejudicial” effects on women and is “irrational”.
He said the policy was “bound to have a greater adverse effect on women than on men” because women earn “substantially less” than men as a group.
The judge added: “The proof of payment rule contributed to making the claimant materially worse off – financially, psychologically and ultimately in terms of her ability to realise her ambition to work full-time – than she would have been if the (childcare costs element) had been payable on proof of liability to pay childcare charges.”
The Government said it will appeal the decision.
In a statement after the ruling, Ms Salvato said: “I’m over the moon with the ruling, I always felt that the rule was unfair and discriminatory.
“It seemed ridiculous that the most hard-up families getting help for childcare costs through Universal Credit had to find the money for childcare costs upfront, sometimes thousands of pounds per month, while better off families earning up to £200k per year got help for their childcare costs in advance through the tax free system.
“It is such a clear barrier into work, when the whole point of welfare reform and Universal Credit was that it would act as an incentive to work enabling and supporting lower income families to work or work more and realise their employment ambitions and all the benefits that brings to a family.
“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 judge said the DWP’s decision to make eligibility for childcare costs dependent on proof of payment – but not housing costs which are reimbursed when they are incurred – “adversely affects” those who are entitled to childcare costs, more than 80% of whom are women.
He added that women are “substantially more likely than men to be denied access” to childcare costs because they “do not have enough money to pay childcare charges out of their own funds before being reimbursed”.
Ms Salvato’s case was supported by Save the Children, the Professional Association for Childcare and Early Years (Pacey), and Gingerbread, a charity supporting single parent families.
In a statement, Save the Children said the ruling will help “half a million parents” in England and Wales to stay “in work and out of poverty”.
Becca Lyon, the charity’s head of child poverty campaigns, said: “For years we have been hearing from parents that the system is unfair and is forcing them to run up debts, face financial hardship, or even drop out of work altogether because they can’t afford to pay childcare or nursery fees in advance.
“As we come out of the pandemic and the economy begins to recover, access to childcare is especially important to get the economy moving again.
“We look forward to working with Nichola and the DWP to make sure this change is implemented quickly and in the best way possible for families.”
Victoria Benson, chief executive of Gingerbread, said: “Nichola’s win is great news for single parents who are unfairly hit with the burden of upfront childcare costs.
“Single parents need childcare in order to work but it’s often impossible for them to find hundreds of pounds to pay for childcare upfront.
“This leads to a spiral of debt and pushes too many into poverty.
“The overwhelming majority of single parents want to work and Gingerbread has long called for Government to support those who need it most with the upfront costs of childcare.
“This common sense judgment proves that is exactly what should now happen.”
At a hearing in November last year, the court was told that around 83% of households receiving the childcare element of universal credit are single parents, and 90% of lone parents are women.
Chris Buttler, representing Ms Salvato, said the current situation was a “catch-22” for parents that locks them out of the labour market.
He argued that the way childcare payments are currently made is undermining Universal Credit’s aim of “encouraging and supporting parents seeking to move into or advance within the workplace”.
The DWP argued that the Universal Credit system was designed to reduce error and fraud, which was a big problem for the previous benefits system, and said the payment of childcare costs was “advantageous to women”.
But the judge concluded that tackling fraud did not provide a justification for the discriminatory effect of the proof of payment policy and said it would be “more accurate” to say that the reimbursement of childcare costs went “some way towards addressing a significant structural inequality” – that women form the “great majority” of those whose access to work depends on being able to pay for childcare.
Solicitor Carolin Ott of law firm Leigh Day, who represented Ms Salvato, said: “Universal Credit was designed to support parents moving into or advancing in work.
“Yet our client, like thousands of others, found herself unable to pay for childcare upfront, facing severe hardship and forced to reduce her working hours.
“The Secretary of State committed to a ‘test and learn’ approach in rolling out Universal Credit yet refused to listen to the many campaigning organisations and individuals who have raised this issue for a number of years.
“Our client hopes that the Secretary of State will accept the ruling and take urgent steps to fix this perverse situation which, as noted by the court, is a barrier to work and has disproportionately prejudicial effects on women.”
A Department of Work and Pensions spokeswoman said: “This is currently a matter for the court and the secretary of state is appealing this decision”.