Currently, families claiming Universal Credit in England, Scotland and Wales pay childcare costs upfront and then claim a refund. But experts say the process is complicated and risks people getting into debt in order to go to work.

Under the government’s plans, parents eligible for help through Universal Credit will be given childcare payments upfront.

However, the Budget will also include stricter rules about looking for work and there will be tighter sanctions for those on welfare who don’t comply with their obligations.

How does the current childcare system work?

At the moment, working households on Universal Credit can claim back 85% of childcare costs up to a maximum of £646 a month for one child, or £1,108 for two or more children.

The cap has been the same since 2005, despite childcare costs more than doubling in some areas since then.

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The majority of parents find that the average price of a full-time nursery place for a child under two is higher than the maximum amount available through Universal Credit or other benefits. Campaigners say this stops many parents – mostly women – from being able to afford to go to work.

Calls for childcare costs cap to be increased

The Local Government Association (LGA) is calling for the cap on claiming for childcare costs to be increased in line with inflation in Wednesday’s Budget.

The LGA, which represents councils across England, says raising the cap could help struggling households during the cost-of-living crisis.

The latest figures suggest that more than 713,500 eligible earning parents from a total of 823,600, who receive Universal Credit, are not even claiming for childcare costs, raising concerns over the complexity of using and accessing the system.

Cllr Louise Gittins, chair of the LGA’s Children and Young People Board, said: “Access to childcare is vital for all families, especially for those on the lowest incomes, the most disadvantaged children, women and single-parent families.

“Childcare enables people to work, increase their hours, or take on new opportunities, as well as move out of poverty and most importantly improve families’ and children’s long-term life chances.

“But the UK has one of the most expensive childcare systems in the world, which is impacting on many low-income families at a time when the cost-of-living has rocketed.”

Exactly what will be announced in the Budget on Wednesday is still unclear – although insiders say that the maximum amount families can claim for childcare could increase by “several hundred pounds”.

A proposal to extend the 30 hours of free childcare to one and two-year-olds in England is said to have been rejected due to being too expensive.

Currently, all households get 15 hours’ childcare for three and four-year-olds, while some families qualify for 30 free hours.