Increase to Tax-Free Childcare needed in Spring Budget

Ahead of the Spring Statement on Wednesday 6 March 2024, Employers For Childcare is calling on Chancellor Jeremy Hunt to increase the support available to working parents through the Tax-Free Childcare scheme.

In last year’s Spring Budget, the Chancellor announced an increase to the support available with childcare costs for families on Universal Credit, alongside a massive expansion of the Government’s free childcare offer in England, to include all children from nine months from September 2025.

However, no additional support was made available to families whose only option for childcare support is through the Tax-Free Childcare scheme.

Tax-Free Childcare 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.

The Northern Ireland Childcare Survey 2023 found the average cost of a full-time childcare place in Northern Ireland to be £10,036 – more than the maximum amount supported through Tax-Free Childcare.

Vital support, but more is required

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.

While it is positive that the new Northern Ireland Executive has identified childcare as a key priority, families cannot wait for the delivery of the promised Early Learning and Childcare Strategy. In the meantime, 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, but particularly those in Northern Ireland who do not benefit from the free childcare schemes that are available in other parts of the UK.

While much more is needed to invest in our childcare sector – a bespoke financial support scheme to assist families with affordability, enhancing quality, improving pay and terms and conditions for the dedicated workforce – this is an action that could make a real difference to the countless families who are struggling right now.