Parents could be hundreds of pounds better off after Jeremy Hunt revealed a series of changes to the childcare system in his inaugural Budget.
The chancellor said he wanted to “reform our childcare system”, and noted that the UK has “one of the most expensive childcare systems in the world”.
The changes include expanding the 30 hours of free childcare for working parents in England to cover babies and toddlers aged nine months and over, giving more funding to local authorities so schools can provide wraparound childcare, and paying families on Universal Credit childcare support upfront instead of in arrears. According to finance.co.uk, the changes will essentially give parents a pay boost of around £6,500 on average.
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Hunt said in his Budget speech: “Almost half of non-working mothers said they would prefer to work if they could arrange suitable childcare.
“For many women, a career break becomes a career end.”
The Treasury added that providing 30 hours free childcare to all under 5s for eligible working parents - rather than just three and four-year-olds, as it is currently - would “help with the cost of living, support education for the youngest children, and remove one of the biggest barriers to parents working”.
According to the Office for Budget Responsibility, the expansion of free childcare "has by far the largest impact on potential output” of all the policy changes announced in the Budget, with 60,000 people expected to be gradually added to the workforce, increasing GDP by 0.2% by 2027-28.
While the childcare changes have been broadly welcomed, there are concerns over the availability of childcare as well as how much funding providers will receive from government.
At a glance: seven childcare changes
- 30 hours’ free childcare will gradually be extended to eligible working parents with children aged between nine months and two years old. This will be rolled out in phases from April 2024 and is in addition to the 30 hours a week already provided for eligible working parents of 3 to 4-year-olds.
- The number of kids per staff member in nurseries in England will rise from four to five - but the changes will be optional.
- Nurseries that provide free childcare will receive more funding, by £204m from this September rising to £288 million next year.
- Schools will receive more funding to provide wraparound childcare. Hunt said: “Our ambition is that all schools will start to offer a wraparound offer, either on their own or in partnership with other schools, by September 2026.”
- Parents on Universal Credit will have childcare costs paid upfront by the government, rather than in arrears.
- The maximum amount that families on Universal Credit can claim for childcare will be increased: the maximum amount for one child will rise from £646 a month to £951, while for two children it will rise to £1,630.
- People who take a childminder job will receive a £600 bonus while agency workers who take a childminder job will receive £1,200. This is part of a government initiative to boost the number of childminders.
What it means for your family
Susannah Streeter, head of money and markets at the investment platform Hargreaves Lansdown, called the expanded 30 hours free childcare scheme “the big cuddly rabbit that Jeremy Hunt pulled out of the hat for parents struggling with childcare costs”.
She added: “This could transform the finances of parents, and should help stop them leaving the workforce or dramatically cutting hours because the cost of childcare is so painful. This will be introduced gradually, but will be in place by September 2025.”
A report this month from the charity Coram Family & Childcare found childcare costs have shot up by 5.6% in the past 12 months; a part-time place for a child under age two now costs around £149 a week (or £7,748 a year).
On the face of it, the changes all seem positive, helping parents juggle work and children, and giving their finances a boost thanks to free childcare for babies and toddlers while those on Universal Credit will be able to claim extra money upfront.
It should also help reduce the gender pay gap and the gender pensions gap, as more mothers go back to work after maternity leave and pay into a pension.
“Staying in work for those two years could boost the eventual private pension pot of a parent on an average salary by around £12,000 (£205,000 rather than £193,000),” said Becky O’Connor, director of public affairs at the pension provider PensionBee. “With the impact of better salary progression factored in, this boost could be even greater.”
Meanwhile, those with school-aged children who have struggled to find wraparound care such as breakfast clubs and after-school clubs should find this easier over the next few years. According to the Budget document, central government will release £289 million in start-up funding to enable schools and local authorities “to test options to increase the availability of wraparound childcare in the longer term, with national roll-out over academic years 2024-25 and 2025-26”.
The combined childcare announcements are forecast to cost the government almost £18.5bn by 2027/28, marking the biggest spending spree on childcare ever.
Is it as good as it sounds?
There are concerns over the availability of childcare. The Coram report revealed that only 57% of local authorities have enough childcare places available for children under two, down from 72% in 2021. And only 59% report having enough childcare available for parents working full-time, down from 68% last year.
It’s also unclear how much funding nurseries and childminders will receive to offer the extended 30 hours scheme.
Shreya Nanda, chief economist at the Social Market Foundation, said: “The government must make sure that the funding provided is adequate to provide the care promised. It is striking that most of the expanded childcare offer won’t kick in until after the election – this potentially creates a headache for whoever is in government in the next parliament in ensuring that it is adequately funded.”
Tracy Crookes, chartered financial planner at the wealth manager Quilter, added that parents must remember that the free 30 hours does not apply to the whole year.
“The hope is that the extension of this scheme to younger years will get people back into the workforce, however, it should not be forgotten that the 30 hours free childcare only runs during school term time – which effectively means it becomes a 22 hours free childcare scheme for working parents.
“They are simply left to fill the rest of the gap either from their own pocket or by giving up some element of employment. Furthermore, not all parents are aware that the free childcare hours do not include food, nappies or other provisions, so the costs still rack up.”
Sam Freedman, a politics columnist, tweeted that not all parents will benefit from the scheme; only “eligible working parents”. This means both parents must be working, and this does not include those who are training, such as trainee nurses.
The 30 hours free childcare scheme is currently open to working parents who live in England and have a child aged 3 or 4. They must each earn at least the National Living Wage for 16 hours a week on average.
If a parent or partner has an expected “adjusted net income” over £100,000 in the current tax year, the family is not eligible.
Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times.
A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service.
Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.
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