Spring Budget: Chancellor announces major new funding for childcare in England

During his first Spring Budget on 15 March 2023, Chancellor Jeremy Hunt announced the expansion of ‘free childcare’ for working parents in England, extending the existing scheme – currently targeted at parents with three and four-year-olds – to children from 9 months of age until they start school.

The plans are part of a Government drive to encourage more people back to work and to boost economic growth. The Chancellor acknowledged that childcare costs in the UK are amongst the highest in the world, and have been identified as a barrier to parents – particularly mothers – going back to work or working full-time.

The Chancellor’s key announcements on childcare in the Spring Budget were:

30 hours free childcare scheme expanded in England to children from 9 months

Currently, many working parents in England with three and four-year-olds are eligible for the 30 hours free childcare scheme. The new plan will extend this scheme to eligible families with children from 9 months up to 2 years old.

This will mean that all eligible households will be entitled to 30 hours of free childcare for 38 weeks of the year (during term time) for children aged 9 months to 4 years. It is anticipated that this will lead to a significant reduction in childcare costs for families.

To manage this, the scheme will be introduced in stages to ensure there is enough supply in the market:

• Initially, from April 2024, 2 year olds will receive 15 hours of free childcare
• From September 2024, this will be extended to children from 9 months
• From September 2025, the 15 hours will increase to 30 hours.

Through our own research, we know that childcare costs can be highest for parents with younger children. In the Northern Ireland Childcare Survey 2021 parents told us that the times when it is most difficult to afford the childcare they need to work are when they are returning to work from parental leave, and when their children are aged 0-2 years.

This is a key development for families in England and for the wider economy. Investment in childcare to make it more affordable is critical to enabling parents to get into and stay in work, as well as to ensuring children can benefit from quality early education and care.

While welcome, providers across the sector have also expressed some concern about the levels of funding and whether the infrastructure exists to offer these places. Challenges in recent years have seen the closure of nurseries and a reduction in the number of childminders, while providers who remain in operation are reporting a workforce crisis that is impacting on their capacity.

It will also be important to assess the detail on funding levels. Given the current shortfall in funding for the existing scheme, there will be concern that providers could potentially be asked to offer more ‘free’ childcare hours at a loss, which would further damage the viability of the sector and potentially be hugely destabilising.

Increased funding for childcare providers who deliver free childcare hours

It is therefore welcome that the Chancellor has also announced an increase in funding – of £288 million by 2024/25 – for the existing 30 hours weekly entitlement of free childcare, increasing the hourly rate currently paid to childcare providers.

At present, the low rate of subsidy is often not sufficient to fully cover the cost of delivery. This threatens the sustainability of those settings delivering the places. This has led to the closure of settings, or discouraged other settings from offering the scheme. It has also resulted in an increase in the cost of additional hours for those accessing the scheme, as well as higher costs for provision for other age groups. As a result, parents of children who do not qualify for the free hours because of their age have, in some areas, been effectively subsidising the shortfall in the funding subsidy. This ‘cross-subsidising’ will no longer be possible when these younger children are also entitled to free childcare hours.

Again, a full analysis of the funding rates will be needed to assess whether they are sufficient to address not only the existing shortfall in funding, but also add up to what is required to extend the scheme to younger children, to invest in provision and improve pay and conditions for the early education and childcare workforce.

Additional funding for wraparound childcare provision

The Government will give local authorities in England funding to start setting up additional wraparound childcare provision in schools for school age children from September 2024, with a view to all schools offering full wraparound care by September 2026.

Changes to staff ratios

The Chancellor confirmed that childcare providers in England will have more flexibility in how they can operate, with an ‘optional’ change introduced for the minimum staff to child ratios when caring for two year olds, moving from 1 carer to 4 children to 1 carer to 5 children, to align with Scotland.

However, Neil Leitch, CEO of the Early Years Alliance, which represents around 14,000 childcare providers in England, has expressed real concern about this on behalf of the sector, and said that relaxing ratios risks “severely compromising the safety and quality of care” and putting more pressure on the workforce during “a severe staffing crisis”. Parents have also expressed their dissatisfaction with this proposal, worried that childcare staff will be severely over-stretched and that the quality of the care their children would receive would suffer, while at the same time they wouldn’t see any reduction in costs.

Financial incentives for childminders

Reflecting on the decline in the number of childminders in recent years, the Chancellor introduced a new pilot of a financial incentive payment for childminders in England, aimed at encouraging more people to join the profession. This will be a one off payment of £600, rising to £1,200 for those joining through an agency.

Universal Credit – UK wide

 The Chancellor also used the Spring Budget to announce more help with childcare costs for families on Universal Credit.

Through Universal Credit, families can claim back up to 85% of their registered childcare costs. This is a vital form of support for families but, since its introduction, the maximum monthly limits under Universal Credit have remained static at:

• £646.35 for one child
• £1,108.04 for two or more children.

These figures are being increased to:

• £951 for one child
• £1,630 for two or more children.

This is an increase of almost 50%, and will be introduced from July 2023. This change should apply across the UK, and we anticipate that this will include in Northern Ireland.

Critically, the Chancellor has also committed to increasing these figures in line with the Consumer Price Index each year until 2027/28.

Claimants may also be able to receive the funding upfront when they need it – such as when moving into work or increase hours – instead of having to pay their costs upfront and then claim support back. This is similar to the expanded Adviser Discretion Fund in Northern Ireland.

This is a welcome development for eligible families, and is something that we have been calling for, for some time.

No further support for families claiming Tax-Free Childcare

Significantly, there are many families who will not benefit from this change because they are not eligible for Universal Credit but, instead, rely on support through other schemes such as Tax-Free Childcare.

The Tax-Free Childcare scheme allows eligible working families to claim 20% of their registered childcare costs from the Government, up to a maximum of £2,000 per child per year, or £500 per quarter. This equates to 20% of childcare costs of £10,000 per year.

What this means is, once childcare costs for a child exceed £10,000 per year – as is more and more frequently the case for families– there is no further support through the Tax-Free Childcare scheme. Any increase in their childcare costs will not be matched by a corresponding increase in support through Tax-Free Childcare.

With childcare costs increasing, this is making it increasingly difficult for families to afford the childcare they need in order to work, and results in some parents – particularly mothers – finding it does not make financial sense to work as many hours as they would otherwise want to.

We also know, from our work with families, that support of 20% on their registered childcare costs is simply nowhere near enough, and means families are still struggling to afford the childcare they need.

We are calling for an increase in the rate of Tax-Free Childcare savings, accompanied by the removal of the £2,000 per annum cap on support available through Tax-Free Childcare, so that families can benefit from the savings on the full amount of their registered childcare costs.

What will the childcare support announced in the Spring Budget mean for parents in Northern Ireland?

It is important to note that, other than changes to Universal Credit, the reforms announced by the Chancellor will not apply in Northern Ireland. While we anticipate equivalent funding for Northern Ireland through the Barnett consequential, there is no obligation for the Northern Ireland Executive to spend that on childcare.

In the absence of an Executive, and ringfenced funding for childcare in Northern Ireland, the Budget therefore only serves to widen the gap between Northern Ireland and  the rest of the UK in relation to financial support with childcare, as we fall further and further behind in terms of developments and investment. Northern Ireland has the highest levels of economic inactivity of any region of the UK, yet will not benefit from key proposals set out in the ‘Budget for Growth’ to support parents into work. Already, we have been contacted by parents, childcare providers and employers voicing their deep concern and frustration.

This disparity has gone on for much too long, and must not be allowed to continue. We need an Executive in place to deliver on the Childcare Strategy that is currently in progress and to urgently ring fence the significant budget that is needed to ensure it is ambitious, and delivers for families, for providers and for our economy as a whole.

We know the political parties in Northern Ireland have expressed their commitment to delivering on childcare. But we need to see promises now translated into policies that deliver pounds into the pockets of families, and investment in our critical childcare infrastructure.

For further information

For full details of the Chancellor’s Spring Budget, visit the https://www.gov.uk/government/publications/spring-budget-2023.

Employers For Childcare’s Family Benefits Advice Service provides free, impartial and confidential advice to parents on the financial support their family is entitled to and can help families work out how these changes may affect your household circumstances, as well as what financial support you are entitled to. To speak to an advisor call us on 028 9267 8200 or email hello@employersforchildcare.org.