Tax-Free Childcare: only a fifth of predicted number of families sign up

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New figures on the take-up of Tax-Free Childcare from HMRC show that just a fifth of the number of parents the Government expected to have signed up to Tax-Free Childcare have done so.

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According to HMRC’s first quarterly statistics on the scheme, just 91,000 families were using Tax-Free Childcare by December 2018.

The Government had forecast that 415,000 families would be using TFC by October 2017.

In October, Nursery World revealed that just 7 per cent of families eligible for Tax-Free Childcare were using the scheme.

The IT system for Tax-Free Childcare has also been plagued with problems.

In November, analysis by the Labour Party revealed that projected Government spending on TFC would be £600 million lower than expected in the next four years, due to low take-up of the scheme.

Moreover, this money that had been earmarked for the scheme would be returned to the Treasury, to the dismay of early years organisations who had called for the funding to be re-allocated to childcare, given the underfunding crisis in the sector.

Tax-Free Childcare was launched in April 2017 but has suffered a number of IT glitches, which led to delays in the full roll-out of the scheme.

In October, failings with the computer system led to delays of up to a week in 22,000 payments made to childcare providers.

As of the end of November, parents had made more than 4,500 complaints about the scheme.

In February 2018 HMRC paid parents more than £40,000 in compensation for inconvenience and expenses incurred as a result of failures with the Childcare Service website.

Sector reaction

Commenting on the new figures, Neil Leitch, chief executive of the Early Years Alliance (formerly the Pre-school Learning Alliance), said, ‘Given that many parents across the country are continuing to struggle with the cost of childcare, the fact that this flagship childcare scheme has had so little take-up demonstrates just how poorly this policy has been rolled-out.

‘Ongoing technical issues have meant that many parents still struggle to complete the simplest of tasks, even just signing up for the scheme, or reconfirming their eligibility. And of course, the regressive nature of this policy - as those who can afford to put the most into their childcare accounts get the greatest support from government - means that for many families on lower-incomes, it simply isn't worth the hassle.

‘With the Government spending much less than budgeted on this flawed initiative, there is simply no excuse for ministers not to use this money to better support parents and early years providers. This means not only investing into the IT systems needed to ensure Tax-Free Childcare functions as it should, but also ensuring that the funding going to frontline early years providers is enough to enable them to provide quality, accessible and affordable care and education, both now and in the long term.’

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said, ‘The fact that the Government's Tax-Free childcare scheme is reaching less than a quarter of the parents they had hoped won't be a surprise to anyone in the early years sector.

‘The scheme has been hit by problems from the start with our members highlighting issues accessing the online portal and delayed payments.

‘In addition, the Government has not advertised this scheme widely, instead relying on organisations such as NDNA to get the word out via childcare providers.

‘This has resulted in an underspend of hundreds of millions of pounds a year and a further £600 million being returned to the Treasury. Instead of this underspend being retained by the Treasury, the Government should use this money for its intended purpose which is to support early years providers and increase the hourly rate in line with increasing costs.

'Given the funding shortfall for childcare places the sector needs this investment to remain sustainable and to make childcare fees more affordable for parents of younger children who aren’t yet eligible for the funded entitlement.'

Iain Thomson, director of incentive and recognition at Sodexo Engage, said, 'The lack of employee engagement with the new tax free scheme is hardly a surprise. Our own research found that two out of five employees (41 per cent) wanted their employer to provide childcare vouchers as part of their benefits scheme.

'Parents are fully aware of the rising costs of childcare and it’s clear that the government’s scheme isn’t doing enough for families from different income brackets or setups. The government urgently needs to sit up and take stock of these facts in order to deliver the right service to parents.'

Government response

A Government spokesperson said, ‘Tax-Free Childcare is a great offer for working parents and more and more families are benefiting from it. We’re urging all parents to check the Childcare Choices website to see how much they could save, and to apply. 

‘TFC is fairer than childcare vouchers and available to nearly 1 million more families than those using vouchers. Many, such as the self-employed, can now receive support with their childcare costs for the first time.

‘More than 250,000 families already have a Tax-Free Childcare account and the number of parents benefitting from Tax-Free Childcare has almost doubled since March last year.

‘We are running a national communications campaign, including advertising, to raise awareness and encourage more parents to apply.’

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