What Jeremy Hunt’s new free childcare plans mean for you

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Chancellor Jeremy Hunt unveiled the official plans to boost free childcare funding by a staggering £4billion during the Spring Budget today. The move comes as concerns have been growing about the cost of childcare, amid wider cost of living and inflationary pressures putting a strain on Brition’s pockets.

Announcing the new measures to the House of Commons, Mr Hunt said: “We have one of the most expensive [childcare] systems in the world. Almost half of non-working mothers said they would prefer to work if they could arrange suitable childcare.

“For many women, a career break becomes a career end. Our female participation rate is higher than average for OECD economies, but we trail top performers like Denmark and the Netherlands. If we matched Dutch levels of participation, there would be more than one million more women who want to work, in the labour force. And we can.”

He continued: “I don’t want any parent with a child under five to be prevented from working if they want to, because it’s damaging to our economy and unfair mainly to women.

“Today I announce in eligible households where all adults are working at least 16 hours, we will introduce 30 hours of free childcare. Not just for three and four-year-olds but for every single child over the age of nine months.

“The 30 hours offer will now start from the moment maternity or paternity leave ends. It’s a package worth on average £6,500 every year for a family with a two-year-old child using 35 hours of childcare every week and reduces their childcare costs by nearly 60 percent. Because it is such a large reform, we will introduce it in stages to ensure there is enough supply in the market.”

Mr Hunt continued: “Working parents of two-year-olds will be able to access 15 hours of free care from April 2024, helping around half a million parents.

“From September 2024, that 15 hours will be extended to all children from nine months up, meaning a total of nearly one million parents will be eligible. And from September 2025 every single working parent of under fives will have access to 30 hours of free childcare per week.”

Mr Hunt said he also wants to help 700,000 parents on Universal Credit who had limited requirements to look for work.

He explained: “Many remain out of work because they cannot afford the upfront payment necessary to access subsidised childcare. So for any parents who are moving into work or want to increase their hours, we will pay their childcare costs upfront.

“And we will increase the maximum they can claim to £951 for one child and £1,630 for two children, an increase of almost 50 percent.”

Commenting on the news, Myron Jobson, senior personal finance analyst at interactive investor, said: “The extension of free childcare of 30 hours a week for working parents is a game-changer.

“Many parents with fledging careers have had their wings clipped because the eye-watering cost of childcare has made full-time employment uneconomical – a fate that is statistically experienced by mothers most, which is frankly unacceptable.”

Mr Jobson also noted that the measure could also prove to be an important step forward towards addressing the gender pay and pension gap.

He said: “interactive investor estimates that the gender pension gap alone is £68,000. The plan will go a long way in easing the financial burden of raising children at a time when many parents are desperate for a financial reprieve amid the cost-of-living crisis.

“Paying childcare costs upfront for those on universal credit would remove a significant barrier that stops some of the most vulnerable members of society from building a career.”

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What do the changes mean for you?

Currently, working parents with three and four-year-olds are eligible for 30 hours of free childcare per week.

The free childcare scheme will also cover children from the age of nine months for 30 hours a week.

Parents eligible for help through Universal Credit will now be given childcare funding upfront, and the amount they can claim back will be increased by several hundred pounds.

Under the current system, working households claiming Universal Credit can claim back 85 percent of childcare costs up to a maximum of £646 a month for one child, or £1,108 for two or more. However, prior to the announcement, this threshold has been frozen since 2005 – despite significant inflationary pressures.

Now, parents claiming Universal Credit will be able to claim back up to £951 for one child and £1,630 for two children, an increase of almost 50 percent.

The Government will also start paying parents on Universal Credit childcare support up-front when they are moving into work or increasing their hours, instead of parents footing the bill and then claiming the money back, which risks them getting into debt.

Who is entitled to free childcare?

Under the current system in England, some lower-income households qualify for 15 hours of free childcare for two-year-olds.

This includes those who live in England and receive the following benefits:

  • Income Support
  • Income-Based Jobseeker’s Allowance (JSA)
  • Income-Related Employment and Support Allowance (ESA)
  • Universal Credit and household income is £15,400 a year or less after tax, not including benefit payments
  • The guaranteed element of Pension Credit
  • Child Tax Credit, Working Tax Credit (or both), and the household income is £16,190 a year or less before tax
  • The Working Tax Credit four-week run on (the payment received when a person stops qualifying for Working Tax Credit)

All households get 15 hours of childcare for three and four-year-olds a week, over 38 weeks, and some families with working parents qualify for 30 free hours.

To be eligible for the 30-hour funded childcare offer, Britons must earn more than the equivalent of 16 hours at the National Living Wage or minimum wage per week.

There is no requirement to work a certain number of hours per week, it only relates to how much a person earns.

While the news may leave many parents breathing a sigh of relief, an expert warns the move may “exacerbate” the high demand nurseries are facing as more look to snap up a place for their child.

Laura Rettie, editor-in-chief of Finance.co.uk, said: “On the one hand, the fact the price of childcare is on the political agenda is brilliant news, and today’s announcement will excite many parents – it’s essentially a pay rise for all working parents of babies and toddlers.

“But on the other hand, there is a lot of work to do. Currently, parents are experiencing difficulties in securing slots for their children at nurseries due to insufficient places to accommodate the demand.

“This announcement could potentially exacerbate the situation and push the sector into a significant crisis. While the news is promising at first glance, significant work is necessary to resolve underlying issues”.

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