Government reveals £2.4 billion underspend on Tax-Free Childcare

Responding to a parliamentary question from the shadow children and early years minister, Tulip Siddiq, the chief secretary to the Treasury, Simon Clarke MP, revealed that the Government has spent £2.4bn less on Tax-Free Childcare than was originally budgeted for the scheme over the last five financial years.

Ms Siddiq asked the Chancellor, ‘what the (a) forecast and (b) actual expenditure was for the Tax-Free Childcare scheme in the last five financial years to date.’

Data provided by the chief secretary to the Treasury in response to the question shows between 2017/18 and 2020/21, the Government spent around £630 million on the scheme when £3bn was initially allocated for the same period. However, spending on the policy has steadily been revised down each year due to fewer people taking up the benefit than expected.

Writing on Twitter, the shadow children and early years minister, said, ‘The Conservatives are completely failing to deliver childcare support for working families. This is the 4th year in a row that the Government has failed to deliver on its childcare promises to parents. Families deserve better.’

The Early Years Alliance said it was not surprised by the figures as the scheme has ‘long struggled with low take-up.'

In May, Nursery World reported that fewer than half of parents with a Tax-Free Childcare account were using it. According to HMRC figures, the percentage of people using their account fell ‘sharply’ due to the Covid-19 pandemic.

Launched in 2017, Tax-Free Childcare is open to households where all parents work. To be eligible, parents need to work at least 16 hours a week and earn at least a minimum each of £142 a week up, but no more than £100,000 a year each. The scheme, which allows working parents to claim back £2,000 a year on childcare costs, replaced the childcare voucher scheme.

The scheme has faced wide criticism from parents and childcare providers in the past following numerous technical glitches to the system, which is managed by HMRC.

'Reinvest Tax-Free Childcare underspend into sector'

The Early Years Alliance and National Day Nurseries Association (NDNA) are calling for the underspend on the policy to be reinvested into the early years sector.

Neil Leitch, chief executive of the Early Years Alliance, said, ‘We know that, despite the increase in early years funding announced at the recent spending review, historic sector underfunding alongside the ongoing impact of the pandemic means that many providers still face an uphill battle to remain in business.

‘As such, we are calling on the Government to ensure that any unused funding for the tax-free childcare scheme is reallocated back into the sector, so that providers can deliver the quality, affordable and crucially sustainable care and education that children and families need.’

Jonathan Broadbery, NDNA’s director of policy and communications, said, 'We know that children have missed a wide range of experiences in their earliest years as a result of the pandemic so this is the time to make sure every penny of support is being maximised. With childcare providers like nurseries struggling with underfunding, this money should be used to support the sector and put children at the heart of the recovery efforts.

'The Government has just announced how they will allocate the £160 million uplift for early years but this won’t even cover inflationary costs for providers, resulting in a real-term cut. The billions of pounds that have been recouped by the Treasury could make a real difference to providers and children’s experiences.'

He added, 'There is a real opportunity to build simplified system that brings all this support into one, easily managed account so parents can see what they are entitled to and easily pay the childcare provider that is best for them and their children.'