However, the £600m underspend will not be re-allocated to the childcare budget, but returned to the Treasury, despite ongoing concerns about underfunding of 30-hour childcare.
Early years organisations have responded by saying that the decision 'beggars belief' when the sector is in crisis and have called for the funding to be used to support families and struggling providers.
The figures are contained in the detail of documents published by the Office for Budget Responsibility following the Chancellor’s budget last week.
The OBR’s Economic and Fiscal Outlook updated projected spending on TFC shows a shortfall of £100m for 2018-19, followed by £200m in both 2019-20 and 2020-21, and a further £100m drop in 2021-22.
- Guide to: Tax-free Childcare Vs Vouchers
- Government renews call to sign up for tax-free childcare
Labour said that the fall in funding for TFC reflects the fact that take-up of the scheme is much lower than the Government’s projections, suggesting that parents are not able, or not choosing to, use the scheme.
Official figures reveal that take-up of the scheme has been less than expected. In November 2017 the OBR found that the caseload for TFC was only 30,000 compared to a projection of 415,000.
When it was originally announced (in the Budget in 2013), Tax-Free Childcare was expected to cost £0.8bn in 2017-18; in November 2017 the forecast was £37m. £800m has already been returned to the Treasury since the scheme began.
Labour has said that it would scrap tax free childcare. Labour MPs had backed the campaign to keep childcare vouchers and the Government was forced to extend vouchers to new entrants for a further six months after losing a vote in the House of Commons earlier this year on the issue.
The extension of the scheme cost £50 million a year due to increased demand for vouchers as families had to sign up before the scheme was scrapped last month.
Shadow education secretary Angela Rayner said, ‘Austerity is clearly not over for hard-pressed families.
‘The Budget has completely failed to provide children with the best possible start in life, and parents will once again be left without support in accessing the childcare they need.
‘The fact that projected spending has fallen by hundreds of millions of pounds yet again means thousands of parents will not be getting the support they need with the cost of childcare.’
Neil Leitch, chief executive of the Pre-school Learning Alliance said, 'Given that childcare providers across the country have long been crying out for additional funding, the suggestion that Government underspend on the tax-free childcare scheme is to be returned to the Treasury rather than used to support a sector in crisis beggars belief.
'Such a decision suggests that pre-schools, nurseries and childminders are being left to struggle not because the Government simply doesn’t have the money for additional investment, but rather because it doesn’t believe that there is a true need for it in the childcare sector. And yet, survey after survey and report after report have made it clear that significant investment into the Government’s funded entitlement schemes is needed if the sector is to have any hope of remaining viable in the long term.
'We know that early care and education play a vital role in giving all children, regardless of background, the best possible start in life. How, then, can the Government talk about improving life chances and "closing the gap", and then pass up an opportunity to better support the very sector that is key to achieving these goals? We urge the DfE to review this decision and to ensure that, if there is additional money available to the department, it will be spent where it’s so desperately needed.'
Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA) said, 'The Government says it is keen to boost social mobility and surely the best way to do this is to invest in children’s education in their earliest years.
'This money was earmarked to support families with young children and should be used for this purpose only, not sent back to the Treasury for the Chancellor to give away to other departments.
'This £600m could make funded childcare much more viable for providers and unlock more places within nurseries.
'We know that nurseries are going out of business on a weekly basis. Our research showed that the closure rate had increased by 66 per cent since the 30 hours policy began over a year ago. The Department for Education’s own figures released this month report a drop of 300,000 places since 2016. This is the Government’s chance to adequately support the sector to deliver quality early years education and childcare and decision-makers should do just that.'
Liz Bayram, Chief Executive at the Professional Association for Childcare and Early Years (PACEY) said, 'Any childminder, nursery or pre-school will be angry to read that £600m dedicated to supporting families with childcare costs has not only been under-used but also returned to the Treasury. At the very least it should have been repurposed to allow more families to get support, through increased funding for early education, early years pupil premium or any number of other areas. It also raises the question how this underspend has arisen? Do we need to revisit the criteria for tax-free childcare when many low-income families don't qualify and money goes to waste.'
The Conservatives said they were raising awareness of the scheme.
Responding, Tom Pursglove MP, Conservative Party vice chairman for youth, said, ‘With our balanced approach to the economy, we are able to increase spending on childcare in real terms since 2010 to around £6 billion a year by 2020.
‘This includes delivering our commitment to provide working parents of three- and four-year- olds 30 hours free childcare a week – helping them balance work and family life and give children the best start in life.'