Tax-free childcare uptake still low, say critics

Only 141,000 families were using tax-free childcare, one of the government’s key childcare policies, this summer, with most usage concentrated among one and two year olds and in London and the South East.

The report from the Government shows more parents are accessing tax-free childcare than the year before when just 60,000 families used it.

The scheme – which is also open to the self employed – involves working parents of children under 12 or 17 if children are disabled logging into an account, paying approved childcare costs upfront and then claiming the tax back.  For every £8 they spend, the Government will top up by £2. It has been criticised for being overly complex and mainly benefiting wealthier parents who can afford to pay upfront fees. It has also struggled with technical issues and was not fully rolled-out to all eligible children until March 2018, six months after its launch. The payment system has also recently been changed and childcare providers say there was little communication on this.

In June 2019 account usage was highest amongst children aged one (46,000) and two (41,000). Account usage was considerably lower for children aged five and over at just 28,000. The Government spent £15.1m to top-up childcare.

London and the South East represented 31% of account usage with Wales, the North East of England, Scotland and Northern Ireland representing the lowest usage at between 1.6-3%. The Government says this is partly because outside England tax-free childcare is not linked to accounts used to access the more popular 30 hours free childcare offer for three and four year olds.

Neil Leitch, the Early Years Alliance’s chief executive, said: “We warned Tax-free childcare was a regressive policy from the outset because it meant parents with more disposable income received more financial support from government than those with less. The worryingly low take-up of Tax-Free childcare seems to show these fears have now been realised.

“It now seems inevitable that there will be yet another underspend on this failing government policy. It’s imperative that any Tax-free Childcare surplus finds its way to the families and providers currently subsidising the £662 million shortfall in the government’s early years funding, rather than being pocketed by the Treasury – something that simply cannot happen again.”

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