Nichola Salvato realises the devastating irony of her situation.

As a welfare rights advisor, she spends a lot of time helping people facing financial woes, and knows the perils of taking out payday loans with extortionate levels of interest.

But she found herself flouting her own counsel when she took out a short term loan with a staggering 126% interest rate, after struggling to pay for childcare while on Universal Credit.

Shrugging her shoulders helplessly, she told HuffPost UK: “I had no choice. The only way I could pay for my childcare costs was through borrowing money. I decided I wanted to work full-time to give my daughter a better life, but instead, I found myself pushed into debt.”

The 48-year-old, who is a single mum and lives in Brighton with her 11-year-old daughter Sofia, told HuffPost UK her problems began when she decided she wanted to work full-time and got herself a new job at a housing association.  

She was put on Universal Credit, but soon realised to her dismay that she would have to pay the costs of her daughter’s before and after school childcare costs upfront, as well as significantly higher costs during school holidays to allow her to work her contracted full-time hours.

“It was a real struggle,” she confessed. “I realised I had to pay the childcare costs of around £500 a month upfront and then submit receipts and be reimbursed a month or two later.” 

Desperate to keep her job by meeting her daughter’s childcare payments, Nichola borrowed money from family and friends and then turned to payday loans. “It was a vicious circle as I then had to pay the money back, as well as the interest and then I  had the following month’s childcare costs to worry about,” she said.

“Universal Credit is supposed to mean this ideal that it pays to work more and that working is a way out of poverty and the route to a better life. But actually, it has been the complete opposite.”

But Nichola is now fighting back against the system – and has launched a High Court challenge against the government for its current childcare provisions under Universal Credit.

Carolin Ott of law firm Leigh Day which is representing Nichola, believes the policy is ”indirectly discriminatory against women because it disproportionately affects lone parents, of which the majority are women”.

She added: “It is also irrational as Universal Credit is supposed to encourage people into work and reduce barriers for parents entering and progressing in the workplace”.

Ott says the government’s argument for asking for the money upfront is that it prevents fraud. But she says there are other measures the government could take, such as paying childcare providers directly or setting up childcare accounts for the money.

If Nichola is successful in her challenge, she could open up the floodgates for thousands of other parents facing similar predicaments.

Nichola said her experience has also had an adverse effect on her daughter, who now says she doesn’t want children “because it seems like too much hard work”. 

“She can see the impact it has on me and does not want to be in that situation.

“If Universal Credit is not working to its aims of helping families realise it pays to work, I think it is unlawful.”

How Does Universal Credit Work? 

Universal Credit provisions allow parents to claim up to 85% of their childcare costs if they are on the controversial six-in-one benefit. But to do this, they must make payment upfront and submit receipts and can be made to wait two months or more to be reimbursed. For many single parents who are already struggling and on the breadline, finding such a large amount of money in advance is an impossible task.

 

Figures from the DWP reveal that 41,928 of the 50,269 families receiving the childcare element of Universal Credit are single parents –  a massive 83%.

 

Once Universal Credit is fully rolled out, the DWP estimates around half a million families will eventually be receiving the childcare element. But Save the Children has calculated that around 78% of low income families with young children have no savings, so many will struggle to pay these upfront costs.

But Nichola is far from alone.

Becca Lyon, head of UK poverty at Save the Children, which is supporting Nichola’s High Court claim, said they have seen mums “constantly left in arrears” because Universal Credit requires parents to pay substantial bills of an average of around £1,000 a month upfront, before waiting to be recompensed by the government.

“They’ve had to take out loans to pay nursery bills, turn down job opportunities or even resort to food banks to feed their children,” she said.

Charlotte McDonough, UK policy advisor for Save the Children, adds that as well as having to make cutbacks to try to pay their childcare costs upfront, many parents – particularly women – have revealed they have had to turn down promotions or higher jobs because they simply wouldn’t be able to afford the increased childcare costs.

“One mum worked term-time and was offered a promotion , but it was a year-round job requiring her to work through the school holidays.” she told HuffPost UK. “But she could not afford to pay the summer holiday childcare costs upfront so had to turn the job down.”

Vikki Waterman says she has experienced first-hand how Universal Credit’s aim of incentivising paid work is a dismal failure.

The 35-year-old, who lives near Newcastle, suddenly found herself a single mother to her two young daughters when her partner left her a few months before they were due to get married.

As well as dealing with the heartbreak, she had the worry of trying to raise her young children and thought she would be better off returning to work. 

“As a single parent, I ended up on legacy benefits.” she told HuffPost UK. “But I had always worked and could not wait to get back to work to provide for my kids.”

Vikki got herself a job as an administrator at a dental practice and was shocked to discover that on Universal Credit, she had to find the money upfront to pay for her initial month’s childcare bill of £1,400 for both her children.

After speaking to various people, she couldn’t find a way around it and ended up borrowing the money from her grandfather for her first month of childcare.

She was later reimbursed money from Universal Credit and used this towards her next month’s childcare costs, as well as repaying a chunk of money to her grandfather each month.

“For a few months, things were OK.” she said. “But my eldest daughter was receiving free childcare hours during school term-time and when it came to the school holidays, I received a massive childcare bill as you don’t get the childcare hours then.”

Vikki finds the Universal Credit dictum that “it pays to work” a joke – as for her, it doesn’t. She was recently promoted to treatment co-ordinator for private dentistry at work with longer hours and higher pay. “I am virtually no better off.” she told HuffPost UK. “The more I earn, the less help I get for my youngest daughter who is still at nursery.

“So despite me taking on more responsibility and working longer hours, I am only £40 a month better off.”

Vikki says this month, everyone at the practice has been awarded a bonus, but as the only single mother on Universal Credit, she will be the only one who won’t actually benefit. “The DWP will just give me less money the following month after taking my bonus into account. Even though arguably, I am the one most likely to need the extra money. It is shocking.

“I want to show my daughters that if you work hard, you can do well in life. But Universal Credit is contradicting this as I am working hard and doing really well at work, but am not reaping the rewards.”

Another mother battling to make ends meet under Universal Credit is Gemma Widdowfield. She had always dreamt of being a police officer, and joined the police cadets at 15, before becoming a special and then ended up working as a police constable.

However, while she was pregnant with her daughter Poppy, her partner who she had been with for a couple of years left her. “I was not expecting to become a single parent.” Gemma, who lives  in Bedfordshire, told HuffPost UK. “I did not know how I would afford anything. Even when I was pregnant, I felt like I had a really close bond with Poppy. It was just the two of us against the world.”

Gemma left the police due to childcare as she could not get the flexible hours she wanted and after maternity leave, she began working for a women’s charity as a support practitioner, and arranged for Poppy to be looked after by a childminder. 

The first big issue she faced was paying the first month’s childcare upfront, but had luckily saved a small amount of money which she used for that.

But then she faced problems as the assessment periods for Universal Credit run at different times to the childcare invoices. However, the real obstacle she encountered was during the summer holidays as she had to use annual leave while her childminder was off – and her subsequent Universal Credit childcare payment would be lower.

“Every time Poppy was ill, the childminder couldn’t have her so I had to keep using annual leave and even had to take a day of unpaid leave as I did not have enough leave.”

In November, Gemma suffered a back injury and ended up in hospital three times and was off work for five weeks. She now needs an operation on her back but cannot take any more time off work as she is not eligible for more sick pay.

“My last couple of wages have been less because of my time off sick.” she said. “I am just always so stressed out about money.

“My credit cards are maxed and I already had a personal loan that I was paying back before I had Poppy. My sister used to live with me but she has moved out and my rent is £900 a month. Universal Credit  helps me with that, but it is capped. 

“My car broke down over the Christmas period. That hit me hard and it is still not fixed. Every month, I feel I am spiralling into more debt.”

Gemma has recently discovered that when you are on Universal Credit, you are not expected to return to work until your child is three. “If I had known childcare would be so stressful and a struggle, I would not have gone back.” she said. “It works out that if I hadn’t gone back to work, I would probably have been on the same money on Universal Credit which is just not right.

“A lot of people look at single mothers stereotypically and say: ‘Get  a job.’ But where is the incentive?”

Gemma supports Nichola’s stance in taking the government to High Court over Universal Credit. She told HuffPost UK that while she appreciates the money she receives, she believes the system is wrong in the way people are paid.

“I think childcare on Universal Credit should be paid on invoice rather than receipt and the assessment period should be changed and aligned with childcare bills. And they need to get rid of upfront costs. It is just an admin change that is needed.”

Gemma added: “I am ambitious and want to be successful on my own two feet. When Poppy goes to school, I want to earn a lot of money and pay my own way so I don’t have to be on benefits again.”

A spokesperson from the Department for Work and Pensions told HuffPost UK: “There is help available for childcare costs for children and working parents and guardians getting Universal Credit can claim up to 85% of their outlay, compared to 70% under the old system.

“Those who need help with up-front costs can also access the Flexible Support Fund, which doesn’t have to be repaid.”

The DWP also said that budgeting advances are available to eligible in-work claimants who require help with upfront costs.