£600m underspend as parents shun Tax-Free Childcare

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Just a fraction of families eligible for Tax-Free Childcare are using it, Nursery World can reveal.

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An HMRC advert for Tax-Free Childcare

  • Just 7 per cent of eligible families are using Tax-Free Childcare, as £600m underspend is revealed
  • IT glitch affects 22,000 payments
  • Surge in applicants for vouchers ahead of closure closure

Just a fraction of families eligible for Tax-Free Childcare are using it, Nursery World can reveal.

In contrast there was a surge of applications for childcare vouchers in the run-up to their closure to new users last month.

Government figures show that while 391,000 parents have opened a TFC account, less than a third – 109,000 parents – have used their account to make a payment to a childcare provider.

This means that just 7 per cent of the 1.5 million families that are eligible have actually used TFC.

In addition, 313,000 TFC accounts have been opened by parents who do not necessarily intend to use the scheme. This is because parents are given the option of opening a TFC account when they enrol for the 30 hours.

graphThe latest figures came in response to a Parliamentary question from shadow early years minister Tracy Brabin.

Liz Truss, chief secretary to the Treasury, said on 5 November, ‘Tax-Free Childcare account usage is substantially higher among parents who get Tax-Free Childcare only, compared to parents who have both a Tax-Free Childcare and 30 hours free childcare account; 8,265 Tax-Free Childcare accounts have been closed since the scheme launched in April 2017.’

£600m underspend

Last week, Labour analysis revealed that projected Government spending on TFC will be £600 million lower than expected in the next four years, due to low take-up of the scheme.

Early years organisations have condemned the decision to return the money to the Treasury, particularly when providers are struggling with underfunding of 30-hour childcare.

The figures are contained in the detail of documents published by the Office for Budget Responsibility following the Chancellor’s recent Budget. They show a shortfall of £100 million for 2018-19, followed by £200 million in both 2019-20 and 2020-21, and a further £100 million drop in 2021-22.

The Government says it is raising awareness of the scheme via HMRC’s advertising, but Working Families called for TFC to be more widely promoted, and said the system was confusing for parents.

Julia Waltham, the charity’s head of policy and public affairs, said, ‘Of course the low take-up of the scheme could be because parents have chosen to stick with employer-supported childcare vouchers; and we know from our own research that working parents are increasingly reliant on informal childcare support from family, often grandparents.

‘But the fact remains that there are seven types of childcare support – each with different eligibility criteria and different ways of interacting with each other – available to parents and carers. This tangled web of support can be complicated and difficult for parents and carers to navigate.

‘The Tax-Free Childcare scheme should be more widely promoted to working parents, many of whom could benefit – particularly parents that are self-employed and weren’t able to access vouchers. Ultimately though, Working Families is calling for a simple, progressive funding system that ensures every parent is better off working after childcare costs.’

IT glitch

Meanwhile, the Childcare Service has been hit by another IT glitch that affected 22,000 payments and meant providers suffered delays of up to a week.

Many parents were unaware of the problem with their payments until they received an email on 6 November, after the issue had been resolved, which said, ‘We’re sorry, there was a problem processing some Tax-Free Childcare payments you made last week. The affected payments have now been processed and should arrive in your childcare provider’s bank account on 7 November.’

HMRC said that the payments affected were standing orders made on 30, 31 October and 1 November.

An HMRC spokesperson said, ‘We identified an issue which resulted in delays to some Tax-Free Childcare payments. The affected payments have been processed and childcare providers should receive payments today [7 November]. We have contacted those affected by email to apologise for the inconvenience that this has caused. If parents or providers have any further problems, they can call us on 0300 123 4097.’

HMRC said it would consider reimbursement where additional charges are incurred due to late payments and these would be processed on a case-by-case basis. It said it expected any reimbursements would be made to providers rather than parents.

The Childcare Service website has experienced numerous IT glitches since its launch in April 2017, which led to delays in the full roll-out of the scheme.

Childcare vouchers

The childcare voucher scheme was closed to new entrants last month, despite a vigorous campaign to keep the scheme open, led by the Childcare Voucher Providers Association (CVPA). It was supported by 284 employers, more than 119,000 people signed a petition, and 80 MPs signed an Early Day Motion urging the Government to keep the scheme open.

The CVPA is calling for the scheme to be re-opened. Chair Jacquie Mills said, ‘The news of more technical glitches with Tax-Free Childcare – as well as reduced Government funding – is a further blow to working parents. Families are now not only left with less choice of childcare since childcare vouchers closed, but are left with a scheme that is flawed, less generous for working parents, and unreliable for service users.

‘It is clear more than ever that parents need a choice of childcare support that best suits their individual family needs.’

It added that the entire public sector, every large organisation and most medium-sized companies offered the scheme before it closed on 4 October.

HMRC said the eligibility criteria for TFC is far wider as it is paid per child rather than per parent, and not all employers offered childcare vouchers. Self-employed parents were also not able to use vouchers.

It said it does not have figures for how many parents are using childcare vouchers.

The CVPA said ‘around 780,000 parents currently use childcare vouchers with millions having benefited from them since their introduction in 2005’.

When asked whether there had been an increase in applications to join the childcare voucher scheme in the run-up to the deadline for new users, a spokesperson said, ‘Some of the CVPA’s members found that between July and August, they experienced an almost 200 per cent increase in the number of new registrations from parents to use childcare vouchers, and this rose further between August and September, increasing by 550 per cent. Just to clarify, this does not mean a 200 per cent/550 per cent increase in the number of people using vouchers – it reflects the month-to-month increase in people joining.’

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