Families could be worse off under tax-free childcare

Unlike childcare vouchers, all parents in the household must be working to be eligible for TFC, which comes in from September and replaces the vouchers, and also for the increase to 30 hours of childcare, due in 2017.

Voucher companies argue that because doubling the free hours will lead to families spending less on their childcare costs, many parents will not benefit fully from savings provided through TFC.

Under TFC parents need to spend £8,000 a year on childcare to receive the maximum savings of £2,000 a year, because the Government is subsidising 20 per cent of each child's childcare costs. But with the free entitlement going up to 30 hours a week, many parents may be better off using vouchers.

For example, a parent paying £8 an hour for 40 hours a week of childcare equates to £1,387 a month. With 30 hours free, this reduces to £346 a month. If both parents used childcare vouchers, this cost could reduce further to only £125 a month. But if TFC was used this would cost £277 a month, making vouchers the better option by £1,824 a year.

Busy Bees Benefits is urging parents to sign up to vouchers - and for employers to start offering a voucher scheme - before they are scrapped. Parents already signed up for vouchers will have the right to choose which scheme is best for them from the autumn and opt to move to TFC if their circumstances change, but cannot go back.

John Woodward said, ‘We have been helping parents to work out which scheme will be best for them based on their incomes and childcare costs, finding that the majority of middle-income families are better off using childcare vouchers.’