Tax-free childcare: do the numbers add up?
The government says millions of families will benefit from a more generous childcare subsidy – but there is no new money on the table.
David Cameron said the new tax-free childcare scheme will be “a huge help to millions of families across Britain”.
The prime minister said the government’s decision to help couples with a joint income of up to £300,000 will is aimed at those “who are working hard, who feel the squeeze”.
It comes after a report by the Family and Childcare Trust found that some parents were spending more on childcare than the average mortgage bill.
But critics are querying how the government can afford to offer a more generous deal than the one laid out last year without increasing the overall funding?
How will tax-free childcare work?
From autumn 2015 families with both parents earning between £50 a week and £150,000 a year will be able to open a government-run online childcare account and pay in money as needed.
For every 80p paid in by parents (or employers or relatives), the government will add 20p. The maximum contribution from the state will be £2,000 per child per year, up from the previous ceiling of £1,200.
Money can be taken back out of the account if circumstances change.
Who is eligible?
All children under 12 will count straight away, rather than under-fives, as originally planned. Children with disabilities will receive support until the age of 16.
You do not have to work for an employer who signs up to the scheme, as in the old employer-supported childcare (ESC) system.
For the first time, self-employed parents will be able to take part. Indeed, the £50-a-week minimum income requirement will be waived for the self-employed for an unspecified “start-up” period.
The scheme is open to parents on paid sick leave and paid and unpaid maternity, paternity and adoption leave.
Who will lose out?
Families with only one parent who works will lose out, but the government has announced other support for lower earners.
Parents who get tax credits or universal credit will receive childcare subsidies through the tax credit or benefits system.
We learned today that all parents on universal credit will be entitled to state support for 85 per cent of their childcare spending, a more generous deal than the one announced in last year’s budget.
And the government is seeking to deflect criticism that today’s announcement focuses on higher earners by unveiling a new early years pupil premium with extra cash for disadvantaged children aged three and four.
Tax-free childcare money can only be paid to Ofsted-registered providers, so a significant number of families who use unregistered childminders will miss out.
The government said today that this means up to a third of the 1.9 million families it says are potentially eligible for the subsidy could actually miss out.
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