Government childcare handout use hits record high as cost of living bites

AJ Bell press comment – 16 November 2022

Laura Suter, head of personal finance at AJ Bell, comments on the latest figures on tax-free childcare:

“A record number of people have used the Government’s childcare handout as parents scrabble to beat rising nursery costs and the cost-of-living crisis. In September 401,000 families used the tax-free childcare scheme, claiming £44.4 million towards their childcare costs.

“The scheme, which gives a £2,000 a year per child top-up to help pay for childcare costs, has suffered from underuse as the Government failed to publicise it and parents found the system onerous to use. However, spurred on by rising childcare costs and tight budgets, families are increasingly claiming their entitlement.

“But childcare costs are climbing and the £2,000 a year handout has remained the same since the scheme launched in 2017. It means that the money buys fewer and fewer hours of childcare as nursery, childminder and after-school club costs rise. Childcare providers have been hit by the same barrage of price hikes as individuals, with energy costs and food bills rising, as well as staff costs increasing with the rise in the minimum wage. They either pass these costs on to parents or face financial ruin.

“When the tax-free childcare scheme was launched in 2017 the £2,000 would have paid for nine weeks of nursery fees for a child under two in full-time care, now it will pay for just seven weeks. Nursery costs have risen by more than 20% during that period, while Government support has remained static.

“The difference in London, where costs are highest, is even more stark. The £2,000 a year handout now pays for just over five weeks of full-time nursery for an under-two, compared to almost seven weeks when it was launched in 2017 – as costs have risen 27%.

“The Government has continually mentioned improving the cost of childcare for families. This would help parents struggling with rising bills at the moment, but also boost the UK’s productivity as more parents could return to work, rather than finding childcare costs a barrier to employment.”