The soaring costs of childcare are preventing parents on Universal Credit (UC) from going back to work or increasing their hours, MPs have warned.
As it stands, the benefit is only enough to cover part-time hours and is stopping parents from working at all or taking on more hours, a report from the Work and Pensions Committee found.
It also said parents are being pushed into debt as they have to pay for childcare costs upfront, while Universal Credit payments are delivered in arrears.
Campaigners said the system locks people out of the workforce and further into poverty, with many parents effectively paying to go to work.
Research has shown that even a part-time nursery place costs an average of £138 per week.
Those on UC can get back up to 85% of a £760 monthly childcare bill for one child – a maximum of £646.35 a month.
The £760 cap on total costs eligible for support has remained the same since 2005 and is “long overdue” a reassessment, the MPs said.
This only covers around 27 hours a week, the committee said, making it difficult for parents to move beyond part-time work.
The committee is calling for the benefit to be uprated to better reflect the cost of childcare and for an introduction of a direct payment system so parents are not forced into debt.
Sir Stephen Timms, Labour MP and Committee chairman, said: “Many parents supported by Universal Credit want to work or work longer to provide for their families but are prisoners to the high cost of childcare and a system that requires upfront payment and the invidious choice of taking on debt or turning down work.
“A reassessment of the eligible childcare costs cap is clearly long overdue and a move away from forcing parents to pick up the cost of childcare before receiving benefits is also vital if families are to have access to good quality and affordable childcare.
“This is key not just to helping parents to increase their hours but also for the transformative impact it can have on the lives of children.”
Joeli Brearley, chief executive of Pregnant Then Screwed, said asking parents on Universal Credit to pay upfront for childcare is “completely bonkers”.
She said: “We have heard from hundreds of parents who have been offered a job, only to discover that they need over £1,000 in their bank to pay for a childcare place, leaving them with no choice but to turn down work.
“This system of reimbursing childcare fees, locks parents on a low income out of the labour market and pushes them further into poverty.
“It is yet another example of mothers being set up to fail by this Government, who seem hellbent on creating hurdle after hurdle for those who want to earn a living.
“And then we wonder whey we have so many economically inactive parents in this country and so many children living in poverty.”
Megan Jarvie, head of Coram Family and Childcare, said: “Our research has shown that even a part-time nursery place costs an average of £138 per week, so, for low and middle-income households, financial support with childcare costs is essential to stop parents from effectively paying to go to work."
A DWP spokeswoman said: “Universal Credit’s childcare offer is carefully designed to support parents into work, paying up to 85% of their childcare costs (up to a maximum of £646.35 a month) which is significantly more generous than the legacy system.
“Work coaches can help claimants get up to a month’s support before starting a job regardless of the number of hours worked.
“The government has spent more than £20 billion over the past five years to support with the cost of childcare, empowering providers and ensuring families can access the help they are entitled to while saving money on their bills.”
Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know