Figures show significant underspend on tax-free childcare

New figures obtained by Labour show a significant underspend on tax-free childcare.

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The Government has spent £2.4 billion less on the tax-free childcare scheme since 2017 than was originally budgeted.

A newly-published response to a Parliamentary Question from shadow children and early years minister Tulip Siddiq reveals that between 2017/18 and 2020/21, the government has spent around £630 million on the scheme.

In comparison, the initial forecast spend over this period, as detailed in the Office for Budget Responsibility’s Economic and fiscal outlook overview – March 2017, was £3 billion – though forecast spend on the policy has steadily been revised down each year.

The tax-free childcare scheme was launched in April 2017 and allows eligible working parents using a government account to save towards childcare costs to receive a government top-up of £2 for every £8 saved. Critics say the system is too complicated and requires parents to pay fees upfront before they can claim back money. Moreover, those who can afford to pay the most for childcare get the most back.

A report from HMRC last year showed uptake had increased slightly, but was significantly below the numbers of eligible parents. The figures also showed uptake was skewed towards younger children.

Neil Leitch, chief executive of the Early Years Alliance, said: “The tax-free childcare scheme has long struggled with low take-up, and so it is no surprise to see that spending on the policy remains significantly lower than previously predicted by government.

“But at a time when so many nurseries, pre-school and childminding settings in England are struggling to remain financially sustainable, it makes no sense for such a substantial underspend – on a policy designed specifically to support access to childcare and early education services – to not be reinvested into the early years sector.

“We know that, despite the increase in early years funding announced at the recent Spending Review, historic sector underfunding alongside the ongoing impact of the pandemic means that many providers still face an uphill battle to remain in business.

“As such, we are calling on the government to ensure that any unused funding for the tax-free childcare scheme is reallocated back into the sector, so that providers can deliver the quality, affordable and crucially sustainable care and education that children and families need.”

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