Employers For Childcare again urges the Government to increase the support available to families through Tax-Free Childcare

More support needed through Tax-Free Childcare

During his first Spring Budget on 15 March 2023, Chancellor Jeremy Hunt announced an increase to help with childcare costs for families on Universal Credit. This means that from 28 June 2023, families on Universal Credit with two or more children can claim up to £1,630 per month towards registered childcare costs. This is an increase of 47% over the current maximum support. The Chancellor also committed to increasing these figures in line with the Consumer Price Index each year until 2027/28, however there is no further confirmation regarding this.

This is a very welcome increase, and goes some way to acknowledge the huge increase in childcare costs there has been since the current maximum amount of support was set many years ago. Employers For Childcare has long campaigned for existing financial support schemes for families to be uplifted in line with rising costs.

Many families receiving no additional support

However, there are many families who will not benefit from this change because they are not eligible for Universal Credit but instead rely on support through other schemes such as Tax-Free Childcare.

The Tax-Free Childcare scheme allows eligible working families to claim 20% of their registered childcare costs from the Government, up to a maximum of £2,000 per child per year, or £500 per quarter. This equates to 20% of childcare costs of £10,000 per year.

What this means is, once childcare costs for a child exceed £10,000 per year – as is more and more frequently the case for families due to rising costs – there is no further support through the Tax-Free Childcare scheme. Any increase in their childcare costs will not be matched by a corresponding increase in support through Tax-Free Childcare.

Vital support, but more is required

In March 2023 the government paid £53.8 million into families’ Tax-Free Childcare accounts, this is an increase of £10.8 million over the amount paid in March 2022.

In the year to March 2023 the number of families using Tax-Free Childcare in the whole of the UK increased by 24% to 477,390. Northern Ireland continues to have the lowest number of families using Tax-Free Childcare of all the regions of the UK, however it has seen one of the largest percentage increases in the number of users, up over 29% to 11,735 families over the past year. Employers For Childcare has partnered on and led a range of initiatives to increase awareness and uptake of the scheme.

With childcare costs increasing, it is becoming increasingly difficult for families to afford the childcare they need in order to work, and results in some parents – particularly mothers – finding it does not make financial sense to work as many hours as they would otherwise want to.

We also know, from our work with families, that support of 20% towards their registered childcare costs is simply nowhere near enough, and means families are still struggling to afford the childcare they need.

We are calling for an increase in the rate of Tax-Free Childcare support, accompanied by the removal of the £2,000 per annum cap on support available through Tax-Free Childcare, so that families can benefit from savings on the full amount of their registered childcare costs.

What would this mean for families?

Using the example of a family currently spending £29,120 a year on childcare for their two children.

  • Alex and Jo are charged £56 per day for each of their children to attend a day nursery
  • Alex and Jo therefore pay £14,560 in full-time childcare costs for each of their two children
  • They can currently claim a maximum of £2,000 in support for each child through Tax-Free Childcare, so £4,000 per annum
  • This reduces their costs to £25,120
  • If the cap on support through Tax-Free Childcare was removed, they would be eligible for £5,824 in support, reducing their costs to £23,296
  • If the cap on support was removed, and the support increased to 30%, they would be eligible for £8,736 in support, reducing their costs to £20,384.

Investment in childcare is investing in families and our economy

Employers For Childcare has long campaigned for ambitious investment in our childcare infrastructure – to support this vital sector and the families who rely on it. Not only will this investment be good for parents and for children, but the evidence is clear that the investment will be returned – and more – through the wider economic benefits that result from helping more parents to get into and progress in work, lifting families out of poverty and giving children a great start for their future education and employment.

As we await the much needed and long-overdue Early Learning and Childcare Strategy in Northern Ireland, increasing support through Tax-Free Childcare is a simple and meaningful step that could be taken by the UK Government to support families across the UK. While much more is needed to invest in our childcare sector – enhancing quality, improving pay and terms and conditions for the dedicated workforce, and making childcare more affordable – this is an action that could make a real difference to the countless families who are struggling right now.