What childcare support does the state provide?

Raising children has many challenges. These may include financial challenges, as the full cost of bringing up a child for 18 years is estimated at £157,562 for a couple and £208,735 for a lone parent (1).

The government does, though, provide financial support to help parents with childcare costs, and has a particular focus on pre-school children. Pre-school support is provided in hourly rather than monetary terms.

For example, the government will pay for 30 hours a week of childcare to a two-parent family (or the sole parent in a single parent family) with a child aged between three and four. This applies for 38 weeks a year, during school term time.

To be eligible for this each parent (or the single parent) must be employed or self-employed, and earn at least £167 a week and no more than £100,000 a year. We refer to parents meeting these criteria as ‘working parents’ (2). Our article ‘Pre-school childcare support and the £100,000 limit’ explains how moving above the £100,000 income threshold could have a costly impact for parents with young children.

In his March 2023 budget, chancellor Jeremy Hunt announced an extension of pre-school childcare support in an effort to provide help when both parents or the sole parent want to work. In his budget speech Hunt said: ‘I don’t want any parent with a child under five to be prevented from working, if they want to, because it is damaging to our economy and unfair, mainly to women’ (3).

Expansion of pre-school support

This extension of support for pre-school childcare will take place on a staggered basis as follows (4):

• From April 2024, working parents of two-year-olds will be able to access 15 hours of free childcare a week

• From September 2024, 15 hours a week of free childcare will be extended to all children from the age of nine months

• From September 2025, working parents of children under the age of five will be entitled to 30 hours of free childcare a week.

Even so, parents receiving 30 hours a week of free childcare could still face additional costs. For example, while the childcare itself is paid for by the government, nurseries are allowed to charge parents for things such as meals, trips and activities.

Moreover, working parents wanting full-time childcare may well need a provision of 50 hours a week. So those receiving 30 hours of paid childcare could need to pay for an additional 20 hours a week of childcare. The Coram Family and Childcare charity estimates that the average weekly price in a nursery for this extra 20 hours would be £117.60 in England and £98.79 in Wales (5).

Tax-free childcare (6)

In addition to this pre-school support, the government provides tax-free childcare to parents with children aged up to 11. It is usually available if you (and your partner, if you have one) are in work. Parents can get up to £500 every three months (amounting to up to £2,000 a year).

If you get tax-free childcare, then you have to create an online childcare account for your child. For every £8 you pay into this account, the government will pay in £2 to use to pay your childcare provider. The government also counts contributions from other people, such as grandparents or family friends, as eligible for the top-up.

The government will only pay for childcare if it’s provided by the following:

• Registered school

• Registered nursery, club, playscheme, nanny or childminder

• Nanny or childminder with a registered childcare agency or childminder agency

• Home care worker working for a registered home care agency.

Moreover, the government will only help pay for care provided outside school hours, such as breakfast clubs and after-school clubs. So you can’t get help paying for your child’s compulsory education or private lessons (such as private music lessons) during school time. But if your child has not started primary school, then you can get help paying for childcare provided by a school, such as nursery school fees.

You can use tax-free childcare at the same time as using the 15 hours or 30 hours of free childcare. However, you can’t claim tax-free childcare at the same time as universal credit, tax credits or childcare vouchers, which, in many cases, pay more than tax-free childcare.

Child benefit (7)

Child benefit is also paid to parents to help with the cost of raising children. It is payable to parents of children who are under 16, or under 20 if they stay in approved education or training. In general, to be eligible you have to be considered responsible for the child.

Some of the benefit may have to be paid back if one parent earns more than £50,000. And you lose all of the benefit if you or your partner earns more than £60,000.

Government childcare support and child benefits can provide parents with financial assistance in bringing up children. But raising a family while preparing your financial future can be challenging. At Schroders Personal Wealth, one of our principles is to have regular reviews with an adviser. Such reviews can help ensure you remain on track to meet your own life goals while nurturing the next generation.

Sources:

(1) Child Poverty Action Group, ‘The cost of a child in 2022’, November 2022.

(2) MoneyHelper, ‘Help with childcare costs’, 18 September 2023.

(3) Gov.uk, ‘Spring Budget 2023 speech’, 15 March 2023.

(4) Gov.uk, ‘Budget 2023: Everything you need to know about childcare support’, 16 March 2023.

(5) Coram Family and Childcare, ‘Childcare Survey 2023’.

(6) Gov.uk, ‘Tax-free childcare’, 18 September 2023.

(7) Gov.uk, ‘Child benefit’, 18 September 2023.