The March 2023 Budget changed how childcare costs are supported through Universal Credit, according to the Office for Budget Responsibility's summary of welfare spending. The childcare element rose to £951 for one child and £1,630 for two children from July 2023, and parents moving into work had their first month's childcare costs reimbursed upfront1.
The same Budget also increased benefit conditionality for carers of young children1. The OBR lists both measures among the key policy changes to Universal Credit since 2010, alongside earlier decisions including limiting the child element to two children and removing the family element for new claims in the July 2015 Budget, reducing the taper rate to 63 per cent in the Autumn Statement 2016, and reducing it further to 55 per cent with a £500 a year increase to work allowances in the Autumn 2021 Budget1.
The childcare element sits within a benefit whose overall cost has grown. UC and its legacy predecessors are forecast to account for 27 per cent of total welfare spending in 2023-24, slightly below their 28 per cent share in 2022-231. UC and legacy spending is forecast at £80.9 billion in 2023-24, up from £73.4 billion in 2022-23 and slightly above the cash-terms high of £80.4 billion in 2020-21. Spending on UC alone is expected to be £51.2 billion in 2023-24, up from £42.6 billion in 2022-23, and is forecast to reach £88.1 billion in 2028-291.
The OBR notes that UC was originally planned to have been fully rolled out by 2017-18, but that the rollout, excluding that for some income-based ESA claimants, is now expected to be completed by September 2025, eight years later than originally planned1. The managed move of income-based ESA claimants to UC has been delayed until April 20281. Entitlement is tapered with net income at a single rate of 55 per cent, beginning either when income exceeds a monthly work allowance or from the first pound of income, depending on the case1.
"Changes to UC childcare support in the March 2023 Budget, including increasing the childcare element to £951 for one child and £1,630 for two children from July 2023, and reimbursing parents moving into work for the first month's childcare costs upfront."
Why it matters for households
For families claiming Universal Credit and paying for childcare, the maximum amount the childcare element can cover changed from July 2023: £951 a month for one child and £1,630 a month for two or more children1. The upfront reimbursement of the first month's costs applies to parents moving into work, addressing the point at which costs are incurred before the first wage is received1. The Budget also tightened conditionality for carers of young children, which affects what is expected of some claimants in exchange for their award1.
The wider figures set the context in which these elements operate. UC and its predecessors represent around 3.0 per cent of GDP in 2023-24, just above the 1985-86 level of 2.9 per cent, and are expected to remain around that level over the forecast1. The OBR revised UC and legacy spending up in November 2023, particularly for 2024-25, which it put £4.7 billion above its March 2023 forecast, citing higher inflation and higher unemployment1.
What happens next
The childcare element increase and upfront reimbursement took effect from July 20231. The completion of the UC rollout, excluding some income-based ESA claimants, is expected by September 2025, and the managed move of income-based ESA claimants has been delayed until April 20281. The OBR's page was last updated on 19 January 20241.
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