Parents can reclaim up to £1,200 under new childcare scheme

The Government is launching a brand new system to help parents with childcare costs, but is it any better than the current one?

Working parents will be able to claim back up to £1,200, or 20%, of childcare costs per child, under new Government plans.

The ‘Tax-Free Childcare’ scheme, which will be phased in from autumn 2015, is expected to help around 2.5 million families.

It will initially be available for each child until they reach the age of five, later increasing up to the age of 12.

The Government has said £6,000 is the average annual price of childcare, which is where the £1,200 figure has come from.

Prime Minister David Cameron said: “This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs.”  

Support for parents

The new scheme will be available to families where both parents are working, each earning less than £150,000 per year, and not already receiving Tax Credits.

It will be availalbe to more people than the current Employer Supported Childcare (ESC) scheme, which around 5% of companies use. And it will be also be open to self-employed people, which is the current system is not.

The new system is being introduced to try and help UK parents who are currently paying some of the highest childcare costs in the world, although families where only one parents works will not be able to qualify.

The funding for it will partly come from gradually phasing out ESC and partly from other sources, which have not been named yet.

"The rising cost of childcare is one of the biggest challenges parents face and it means many mums and dads simply can’t afford to work. This not only hurts them financially, but is bad for the economy too," said Deputy Prime Minister Nick Clegg.

What’s changing?

The current ESC scheme now pays working parents up to £55 a week, which is deducted from their salary before tax. This works out at a saving of around £900 a year but it is only available when an employer has signed up to the scheme, whereas the new system is open to all eligible parents.

Parents using this system will be able to continue doing so but after 2015 it will be shut for new claimants.

Working Tax Credits are also available to lower-income families where each parent works 16 hours or more. These can pay for up to 70% of childcare costs up to a weekly cap of £175 for one child and £300 for two or more.

Will parents be better off?

Overall, the new plans have been welcomed by consumer groups and Anne Longfield, Chief Executive of 4Children, says any increase in the support available for meeting the costs of childcare will be welcomed by parents.

But the scheme has been criticised as parents will have to wait two years to be able to benefit. With rising inflation, low wages and childcare costs rising by 5% a year, many argue it would have been more beneficial to launch earlier.

Longfield also points out that at the moment both parents can claim vouchers and under the new scheme it appears only one earner will be able to claim.

It also excludes families where there is only one parent in work and isn't available to workers earning less than £10,000 a year.

The proposals are set to be put out for consultation before being finalised.

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