Childcare costs in the UK are the most expensive of any developed country – but almost two-thirds of families do not claim the government money to which they are entitled.
It is estimated that 1.3 million families are eligible for up to £2,000 a year per child, or £4,000 for those with disabled children, through the tax-free childcare (TFC) scheme, under which the government will add £2 to every £8 you pay your childcare provider. But just 36%, or 470,000 families, claimed in June, according to the latest data from HM Revenue and Customs (HMRC).
The number of families that claim is rising consistently – the government paid out £12m more in June compared with last year – but there is still a huge shortfall in those who could.
To be eligible for the £2,000, each parent, or carer, must be earning at least the minimum wage and not more than £100,000, and working 16 hours a week or more. So why aren’t more families taking advantage of this scheme?
Stagnant funding
The amount of money available from government has remained the same since 2017, despite spiralling childcare costs.
The average part-time bill for a child under two is £148.63 a week, or £7,134 a year – a rise of 5.6% on last year, according to the children’s charity Coram. Yet many families pay more, as these figures are only for 25 hours of care a week.
Louisa Dunbar from Reading has two children – Isabelle, six, and William, two. She and her husband, Stephen, have spent an estimated £70,000 on full-time childcare since they started a family. She says that, as a small business owner, she was left with the choice of giving up the company, or paying for childcare.
The family is eligible for TFC but Louisa describes the system as “incredibly admin heavy” and “the help we get is barely noticeable”.
“Our fees for nursery and childcare have increased multiple times in the last few years,” she says. “I can see how some people can miss out on these benefits. The system isn’t very accessible, which means it discriminates against those who need it most.”
She adds that it “doesn’t make one bit of sense” that the money available hasn’t changed during the cost of living crisis.
View image in fullscreenLouisa Dunbar with husband Stephen and their two children, Isabelle, six and William, two. She describes the TFC scheme as ‘incredibly admin heavy’.
Another common complaint is the level of bureaucracy involved, including the fact parents need to reconfirm their details every three months.
Sarah Ronan, acting director of the Early Education and Childcare Coalition, says some people argue that the scheme is intentionally designed to be difficult. “Every year, we see the same perennial marketing campaign, and every year, uptake remains low,” she says. “The reality is the tax-free childcare scheme does not meet the needs of most families.
“It’s clunky, and the amount parents get back doesn’t get close to meeting the high costs of fees.”
Poor awareness
Many people are simply unaware they are eligible. Research from campaign group Pregnant Then Screwed says one in seven parents do not know about it.
The group’s founder, Joeli Brearley, says: “You could argue that you need a degree and a part-time job just to undertake the onerous application process.
“The title of the scheme is really misleading – with the benefit capped at £500 a quarter, and with childcare costs exceeding on average £14,000 a year full-time, it is not tax free at all. And it hasn’t increased since it was first implemented in 2017, despite childcare costs increasing by 27% in that time.”
Hannah Hardman from Kent, who has two children, Harper, two, and Hugo, one, didn’t realise she was eligible for the money.
“The additional £2,000 would have taken the pressure off, especially as, when I returned to work, I was navigating new expenses with depleted savings from topping up statutory maternity pay,” she says.
With a childcare bill of more than £25,000 a year for her two children, for three and a half days, she works a condensed week and has Fridays off to avoid an even greater bill.
“It would be great if eligible families could be auto-enrolled to avoid so many missing out on the funding,” she says.
Who controls it?
TFC is looked after by two government departments, HMRC and the Treasury.
HMRC says: “The need for parents to reconfirm their eligibility every three months represents a fair compromise between imposing onerous, frequent, reconfirmations, and giving government support to parents that are not eligible.”
The Treasury says of the level of funding that the government “believes it strikes the right balance between helping parents with their childcare costs, and managing the public finances in a responsible way”.
TFC is one of several schemes for childcare fees. Another provides 30 free hours of care, which applies to most children when they are three. This system, under the current government, is set for a massive overhaul announced in March, which will see the eligibility age lowered to nine months from September 2025.
How to claim
If you are eligible for TFC, you can sign up for an account at the gov.uk website. You can then add money directly into the account, which is used to pay the childcare provider. The money deposited into the account is topped up to the annual £2,000 limit.
Payments to your childcare provider need to be set up. You must use an approved childcare provider, and you will need to reconfirm your details every three months.
