Martin Lewis gives advice on using tax-free childcare system
Parents have until tomorrow – August 31 – to sign up for extended free childcare for all youngsters at least nine months of age.
The new regime comes into effect in September, but parents need to register on the government website by tomorrow to ensure they qualify for support this autumn.
Greater access to free childcare will typically save parents of the youngest children around £3,500 a year on average in fees to nurseries.
However, there are concerns that there will not be enough places available in the right places for all those who want to take advantage of the scheme.
The free childcare regime was drawn up by Rishi Sunak’s government and is seen in key to allowing thousands of mothers with young children to return to the workforce.
Historically, all parents of three and four-year-olds could claim 15 hours a week free childcare as standard. It was then extended to eligible working parents of two-year-olds.
Now – from September 1 – it is being extended again to children aged nine months and over.
High childcare costs have put a huge burden on young parents. The average cost of a full-time (50 hours a week) nursery place for a child under two in England is £305.11 a week.
The ability to get 15 hours a week free of charge will amount to a weekly saving of around £91.50. Assuming the free childcare is taken for 38 weeks a year, which mirrors school term times, the saving would be around £3,500 a year per child.
Children aged 3-4 already qualify for 30 hours of free childcare and there are plans to extend this to all youngsters aged over nine months from September 2025.
However, the new Labour government has raised concerns that it will be difficult to find and fund all of the new nursery places that will be needed.
Baroness Jacqui Smith said building the scheme will not be plain sailing as it will need finding some 85,000 more nursery places and some 40,000 more people to work in the sector.
Finance experts said the extension of free childcare to cover babies of nine months and older should help alleviate soaring costs for parents.
Hargreaves Lansdown pointed out that there are concerns that despite the extra funding, there won’t be enough nursery places to meet demand.
It pointed out that faced with childcare difficulties, around one in 10 women have given up work, according to the Fawcett Society.
The new regime comes into effect in September (Image: Getty)
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The pledge to give extra financial help has been on the horizon and it’s finally set to become a reality for parents of children over nine months.
“There are high hopes that it could help keep many more mothers in work, which would make a huge difference in helping to bridge the yawning pay, investment and pensions gap.
“Eligible working parents will be able to access 15 hours of funded childcare from Sunday, but there still could be a sting in the tail of this promise.
“There are concerns there won’t be enough places at nurseries to meet demand from mums and dads, with a lack of childcare professionals in the sector.”
The new government has promised to convert over 3,000 spare classrooms into nurseries, but this will take considerable time to implement.
A report from the Local Government Association found that 25 percent of councils in England said they are “not very confident they have sufficient early years and childcare places” to manage the new offering.
Susannah Streeter said: “Delays in finding a place will be super frustrating for parents who have been holding out for this financial support.
“When childcare costs eat up a huge chunk of your salary, it’s little wonder so many women are quitting jobs or going part-time. The decision to take the back seat in our careers has major consequences for our financial resilience.
“Women are increasingly being left behind, with pay gaps widening and pension pots only nearly one third full compared to men according to data from the Pensions Policy Institute. This is even worse for single parents.”
The HL Savings and Resilience Barometer shows that single parents are particularly behind in financial resilience, partly due to high childcare costs.
The company said that fixing this could not only help close the gender pay and pensions gaps but could help keep inflation lower. That is because an influx of workers back into the workforce could ease worries about the tight labour market.
Who is eligible?
Parents must be working the minimum of the equivalent of 16 hours a week at minimum wage, but less than £100,000 a year. These small print rules apply to both parents, if a couple is applying.
Free childcare hours are usually taken over 38 weeks (to cover term time) but they can be spread out to cover more weeks by using fewer hours a week.
Parents have until tomorrow – August 31 – to sign up for extended free childcare (Image: Getty)
Tips to combat the childcare cost crisis
* Ensure you register promptly for government-funded childcare. Parents need to register via this link https://www.gov.uk/apply-free-
* Speak to the chosen childcare provider to make sure they can offer a place.
* If you are finding costs too much, reduce hours, but try not to quit altogether. Keeping continuity in your career will pay off over the long term.
* Working parents can apply via HMRC for top-up money to help with childcare costs, of up to £500 every three months. You have to be eligible, and you can’t claim if you or your partner earn more than £100,000.
* Universal Credit and working tax credit both have ‘childcare elements’, where the government gives you extra money towards paying for childcare. If you qualify, you can get up to 85 percent of what you pay for childcare, up to a maximum of £950.92 per month for one child, or £1,630.15 for two or more children.
* If you can work from home, ask for flexible hours so that you stop work at 3pm and log back on for an extra few hours after bedtime.
* After you’ve built up a rainy-day fund, consider setting up a small direct debit of as little as £25 a month into a stocks and shares ISA so that your money has the chance of working harder. Just be aware that investments fall as well as rise in value, so you could get back less than you invest. This can help build your own financial resilience as well as helping you to assist your children in the future, for education or even buying a house.
* For hours which aren’t funded, it’s worth checking out pre-schools rather than private nurseries for two years plus. They’re usually cheaper but have shorter days. You could always look at setting up a buddy group and take turns to look after each other’s children from 3pm until 6pm.
* If you haven’t yet started a family but hope to at some point in the future, it’s worth setting up a savings or investment account, in addition to your rainy-day fund. Making the most of your £20,000 a year tax-free ISA allowance will help bolster your financial resilience as you grow your family.
