Posted: 14 October 2013

Q&A: A closer look at the government’s new support for childcare costs

The government has recently announced some big changes to support with childcare costs including the introduction of tax-free childcare and changes to childcare support under Universal Credit, the new benefit system. 

While any additional support with childcare costs is welcome, we have some concerns that the changes do not target support at those who need it the most. As the consultation on this bill closes today, we spoke to Laura Rodrigues, Policy Officer on what this childcare support can mean for families across the country.

Question: What is tax-free childcare?

Answer: The government’s proposal is to provide 20% of childcare costs (up to £6000 per child) for families where all parents are in work (unless they earn more than £150,000 a year) and not receiving support through Universal Credit.

Families would be able to claim up to £1200 a year in support and it will be phased in from autumn 2015.

The government thinks that this will cost around £750 million per year. 

Q: What support is there for lower income families? 

A: The government also announced an extra £200 million to provide additional support with childcare costs to those lower income families who are working and receiving Universal Credit from 2016. 

Support for childcare under Universal Credit would to increase from covering 70% of childcare costs to covering 85%. However, this is only for families where all parents are earning above £10,000 (the income tax threshold). All other families on Universal Credit will continue to have 70% of their childcare costs covered.

You mentioned earlier that you have concerns with the complication of these proposals and that they’re not targeted at the people who need them the most. Can you explain what you mean?

The proposals make support with childcare costs more complicated by creating a two-tier system of support for childcare under Universal Credit where some families will get 85% of their childcare costs covered and other families will only get 70%. This adds a layer of complexity and makes it more difficult for families to understand whether they will be better off working more hours or not. 

How so?

Some families work varying hours so sometimes they may qualify for 85% of support and sometimes qualify 70%. They may not know at the start of the month whether they will have earned enough by the end of the month to get the higher rate. 

It is also made more complex as some families will change between the tax-free childcare scheme and Universal Credit system due to changes in household income and circumstances. It will not always be clear which system families would get the most support for childcare costs from.

Can you talk about how the proposals are not targeted at those who need support the most?

The higher 85% childcare support for those families on Universal Credit is only available to those where all parents are earning over £10,000 a year (the income tax threshold). 

Families where parents are on lower incomes will only have 70% of their childcare costs covered. Therefore those on the lowest incomes will receive less support with childcare.

How do you propose the government fixes this?

We believe that they need to make sure that they do not create a ‘two tier’ system of support for low income working families. 

One way of achieving this would be to provide the additional 85% of childcare costs to all families in receipt of Universal Credit. This would create a simpler system, which provides better support to those who need help the most.

By Laura Rodrigues - Policy team

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A highly informative Q&A which would serve as a great initial guide to those researching childcare costs.