Yahoo Finance Millions of parents to get free childcare subsidy – but not until autumn next year
Millions of new parents will receive help with spiralling childcare costs under a multi-million pound package, but today’s toddlers will miss out.
Working families of children aged under five in England will be entitled to 30 hours of free childcare a week, after Chancellor Jeremy Hunt extended a scheme which currently only applies to parents with three and four-year-olds.
The new rules are expected to save parents with a two-year-old in care for 35 hours a week an average of £6,500 a year, at a cost of more than £4bn to the Government.
The Chancellor said the average family with a toddler would have their childcare costs cut by 60pc. However, some parents were left disappointed as the new package will be phased in, meaning many will not benefit from the policy.
Parents of two-year-olds will be able to access a reduced 15 hours of free childcare a week from April 2024, which the Government estimates will help 285,000 families. A further 640,000 parents of children aged between nine months and two years will need to wait until September 2024 for the same benefit.
Families will need to wait more than two years, until September 2025, before they can access the promised 30 hours of free care for all children aged under five.
Mr Hunt said: “Because it is such a large reform, we will introduce it in stages to ensure there is enough supply in the market.”
The announcement comes after years of warnings from campaigners, charities and providers that parents – mainly mothers – were being forced out of the workforce by a chronic shortage of affordable childcare.
Mr Hunt said parents with children aged between nine months and five years old would ultimately benefit from the scheme. He added: “The 30 hours offer will now start from the moment maternity or paternity leave ends.”
All parents in a household must work at least 16 hours a week at minimum wage to qualify for the scheme, to avoid parents not in work still claiming the benefit. The scheme only applies during the 38 weeks a year of school term time.
Rebecca Burdaky, from Manchester, was forced to resign from her job six weeks ago because of the cost of childcare. But she says she will now go back to work once her son qualifies for 15 hours of free care in September 2024.
She was told that her childcare bill for her six-month-old son, Bobby, and for wraparound care for her daughter Harriett, aged three, would be £1,478 a month, a sum she cannot afford. Had Ms Burdaky remained in work she would have effectively earned £20 a month after subtracting childcare costs from her salary.
Ms Burdaky, who works in sales and marketing, said she would have used all of her savings to pay for childcare.
She said: “It is nothing short of amazing. I’ve been slightly emotional following the Budget announcement this afternoon.
“It’s nice to know that not only are we being listened to, but we are improving the lives of so many parents across the UK and for those who have been postponing having children due to childcare costs.”
'A promise for children not born yet'
But the headline promise of 30 free hours will not be available to children under three years old until September 2025 – a wait of two and a half years and after the next general election.
Critics said parents with newborns and toddlers will not benefit from the extended support as their children will have qualified for the 30 free hours already in place for three to five year-olds by the end of 2025.
Toby Perkins, Labour MP for Chesterfield, said the policy was a “promise to children who aren't born yet”.
The cost of placing a one-year-old in full-time care costs £14,000 a year, according to analysis by Coram Family and Childcare, a charity. In contrast, the average British household spends £9,504 on annual mortgage payments, according to UK Finance, the banking trade body.
A survey of 27,000 parents by campaign group Pregnant Then Screwed last year found almost two-thirds of families spent more on childcare than their mortgage or rent.
Joeli Brearley, of Pregnant Then Screwed, said the funding was a significant step in the right direction, but said it would not provide help for parents currently struggling with bills.
Ms Brearley said: “Just three years ago, we would talk to ministers about childcare and they would look at us like we were speaking Klingon. It was of no interest to those in power.
“To go from there to childcare being the main event in the Budget shows the power of collective action and we are elated to hear that the childcare sector will now receive a significant investment.
She added: “We understand that the rollout can’t be rushed, but know there are so many parents struggling right now and those who are living on the breadline, because childcare costs account for the majority of their income, have been left high and dry for the next two years.”
Nurseries struggle to stay afloat
Parents have been forced out of work or into debt in a bid to manage sky-high childcare bills, with disastrous repercussions for their income, pensions and mental health, experts said.
It is most frequently mothers who suffer the consequences of extortionate costs, with women carrying out an average of 60pc more unpaid work than men, according to official figures.
The Office for Budget Responsibility, the Government’s official forecaster, said giving 30 hours a week of free childcare to children aged between nine months and two years would “gradually increase” employment of parents with young families. It estimated roughly 60,000 parents in this demographic would join the workforce by 2027-28.
Expanding free childcare will have by far the biggest impact on labour supply of all the policies announced in the Budget, according to the OBR.
However, the current free childcare scheme is already underfunded and experts have warned that funds allocated to the childcare sector in this week’s Budget fell below what was needed to keep struggling nurseries afloat.
Last month the Confederation of British Industry recommended the Government invest £8.9bn into the early years sector – almost double the £4.6bn ringfenced in the Budget.
Nurseries currently subsidise free hourly rates offered to parents of three and four-year-olds by charging those of one and two-year-olds more. But once the free allowance is expanded to cover both age groups, experts have warned the funding shortfall will escalate.
Ms Brearley said: “We are concerned that the money pledged is not enough to reduce costs for parents sustainably.
“Free childcare from nine months is brilliant, but only if there are childcare settings to offer the care and without the correct funding there won't be."
A part-time care place, equal to 25 hours a week, for a child under two costs an average of £148 per week, having risen 5.6pc in the past year, according to Coram Family and Childcare.
In the most expensive areas of the country typical costs are higher by a third – the average weekly cost of a part-time place for a child under two in inner London is £199.
Childcare places are also in chronically short supply. Just half of local areas reported sufficient childcare for children under two at the beginning of this year, a fall of 7pc compared with 2022, Coram Family and Childcare said. This fell to less than half for parents working full-time.
Stella Creasy, the Labour MP for Walthamstow, said that the reforms for one and two-year-olds were ill-planned and called for measures to increase supply of nursery places.
“This will be like the Help to Buy property scheme – it pushes up demand but does not do enough for supply,” she said.
“At the moment nurseries are staying open by cross-subsidising places for three to four-year-olds with what you charge for a one to two-year-old. If you already have places that are underfunded, and now increase rights to even more places, it won’t work.
Ms Creasy added: “Like Help to Buy, it just makes the problem even more expensive. You may be entitled to 30 hours of free childcare, but the rates above that would be so expensive and unavailable.”
Nurseries, pre-schools and childminders have struggled to absorb inflated energy and food prices and a third are at risk of closure in the coming 12 months, according to the Early Years Alliance, a charity. Those who remain open will need to pass on higher costs to parents to survive.
Neil Leitch, of the Early Years Alliance, warned the sector was in the midst of a crisis and grappling with the fallout from years of “severe underfunding alongside the worst staffing crisis of recent years”.
Mr Leitch said: “The funding announced today is highly unlikely to match what's needed to put providers on a steady footing.
“We know from bitter experience that expansions of so-called 'free childcare' without adequate investment are a recipe for utter disaster. Given that many providers rely on fees from younger children to make up for current funding shortfalls, the impact on the sector if the government gets this wrong cannot be underestimated.”
Relaxed childcare ratios
Mr Hunt also relaxed the staff-to-child ratios for two-year-olds in childcare, from four children to five per staff member – bringing rules in line with other countries such as Scotland. The new ratios will be optional, with the Chancellor stating it would “increase flexibility for providers and the availability of childcare” for parents.
But the sector disagrees. Mr Leitch branded the decision “utterly appalling”.
He said: “Yes, parents want affordable care and education, but they also want to ensure that their children are in safe environments receiving quality care and education. This policy completely flies in the face of that.”
Megan Jarvie, of Coram Family and Childcare, said relaxing staff-to-child ratios was a “step in the wrong direction”.
Ms Jarvie said: “It doesn’t prioritise quality of care and it also will reduce costs for parents. Providers are so hard pressed they would use any savings from the relaxed ratios to balance the books, rather than pass them on to parents.
“Also because the decision to relax ratios will be voluntary, many parents will simply choose not to use nurseries where there will be more children per staff member.”
Universal Credit payout
The Government will also pay the childcare costs of parents on Universal Credit who are taking up work or increasing their hours upfront.
This will remove a major barrier to work for those on benefits, who often cannot find the funds to pay for childcare. Under the current system, they can claim back 85pc of their childcare costs after having to pay for them in advance when they take up work.
Currently, only 13pc of parents on Universal Credit who are eligible for this support claim it, but this could now increase. More than 2.2 million households with children are on Universal Credit.
The Government is also increasing help for parents on Universal Credit who face the highest childcare costs, typically because they work longer hours. The maximum childcare cost that can be claimed will increase by 50pc to £951 for one child and £1,630 for two.
Ms Jarvie said: “The changes to Universal Credit will make a real difference to help middle and low income families move into and stay in work.
“Childcare is an excellent investment. It enables parents to work and boosts the outcomes of young children, particularly the most disadvantaged.”
Additional reporting by Alexa Phillips and Tom Haynes.
'People need intervention now'
By Alexa Phillips
Maxine Bell, 36, said she wishes the childcare support had come sooner.
“It’s far too little too late,” she said. “The problem is now. So many providers have either had to close or have had to streamline down their staff. The fight for places is already such a scramble. But actually people need intervention now, they need the support now. Normal families like ours can't afford these extortionate prices.”
Ms Bell, who works for a wildlife conservation charity, has been working full-time while her husband works part-time and takes care of their children two days a week. Her mother has been looking after her 18-month-old for three days a week to help them save on the costs of nursery, which is around £60 a day in their area.
Ms Bell, from Colchester, is going to have to wait until next April to get 15 hours of childcare for her youngest, Olive, who will be two in October. By the time the full 30 hours is rolled out, Olive will be in school. She has two other children, ages four and six.
Cheri Chadwick, 36, said the new childcare support will allow her to have more children.
“It’s fantastic news,” she said. “We weren’t sure if we could afford to have another child.”
Ms Chadwick, a teacher from Derby, had to reduce her working hours because she could not afford the fees for her son Bramwell, who is two years old.
She and her partner can only afford to pay for nursery two days a week. Her mother, Maria Holt, retired early at 62 to help them out for another two days a week. For two days a week, Ms Chadwick’s nursery costs are now around £450 a month. If she had to pay full-time nursery costs, they would have swallowed up two thirds of her salary.
