Little girl disguised as a butterfly sitting on the bed reading a book to her rag doll
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The tax-free childcare account has been ignored by most of the families it was meant to help — and I’m not surprised.

Despite saving hundreds of pounds on childcare bills for my two small children I have a love-hate relationship with the government account. I tell every new mother and father I meet about it and how much they can save on their childcare bills — before wondering just how much time I’m going to have to set aside to help them understand how it works.

My experience of setting up and maintaining the account has been blighted by a catalogue of errors, from IT glitches when the website was first launched, to a problem relating to top-up payments and delays in paying bills to my childcare providers.

Last month, just when everything seemed to be running smoothly, disaster struck again. This time the code associated with my son’s tax-free account became linked with another child’s name. I discovered, four months into the school year, that I had been paying my son’s bill twice each month: once via the government’s childcare account that I had diligently topped up each month (to get the free top-up); and then again via my “emergency credit card” that I had been asked to register with the after-school care account “just in case I didn’t pay”.

It could have been worse. The double payments could have related to my younger daughter’s (eye wateringly expensive) nursery bill. But the fact remained that I was still hundreds of pounds in the red on the credit card and only received a full refund after a lot of angst and time on the phone to my childcare provider.

The intention behind the tax-free account is commendable — to reduce the excruciating costs associated with childcare for parents wishing to return to work — but the administration and funding of the scheme is severely lacking. It is too complex, time-consuming and has been fraught with technical problems during its roll-out. Many parents are unaware that this childcare scheme exists. Among those that do, few understand how it works or are put off by the “hassle” associated with signing up to it.

When I mentioned the tax-free accounts to parents at my child’s nursery, for instance, their responses included: “Isn’t this the same as the 30 free hours?”; “I’m retraining, do I qualify?”; and “What if I earn more than six figures?” No one I came across had more than a glancing idea of the scheme or its benefits.

Their unfamiliarity is reflected in data from HM Revenue & Customs (HMRC) which show the government paid out just £32m for tax-free childcare in the 2017-18 tax year — less than a tenth of the £390m it anticipated the policy would cost in its first year. Moreover, just 91,000 families of the 1.5m eligible to use the scheme had signed up by last December.

This lack of engagement makes no financial sense for parents. The savings from the account can be significant, particularly in London where childcare costs are steep.

Families who use tax-free childcare receive £2 from the government for every £8 they pay in, to a value of £2,000 per child per year. The account works alongside another childcare policy: parents of three- and four-year-olds can also apply for 30 hours of so-called “free” childcare a week. To qualify, you must work at least 16 hours a week at the national living wage or higher and each parent must earn less than £100,000 a year.

On paper these schemes work well but in reality neither the tax-free childcare account nor the 30 hours scheme is promoted properly to parents. They are two schemes among a range of different types of childcare support, from child tax credits to childcare vouchers, each with different eligibility criteria and rules governing how they interact with each other.

It can also be difficult to compare options for parents, says Becky O’Connor, personal finance specialist at Royal London. For a working couple paying the basic rate of income tax and have two children, the tax-free account will save them about £600 a year less than under the old childcare voucher scheme. This was offered through some employers, but was closed to new applicants in October 2018.

What should have been a positive policy to help parents return to work has become a confusing initiative. Megan Jarvie, head of Coram Family and Childcare, a charity, this week said the government needed to streamline the maze of childcare support schemes so that families can understand what they are entitled to and access the childcare they need.

Research from the charity published on Thursday found that childcare prices have risen by 3 per cent in the past year. Parents now pay an average of £127 a week or more than £6,600 a year, just for a part-time nursery place. This varies across the country, with a part-time nursery place for a child under two in inner London reaching £9,100 a year.

However, even if parents know about the financial help they are entitled to and have time to apply, many will struggle to find the childcare they need. Coram says just over half of local areas in England have enough capacity to supply childcare for parents working full-time, due to inadequate funding from the government via local authorities.

Childcare providers that contacted the FT told me they decided to limit the number of places they have for children of parents claiming the 30 hours of funding. Others have had to cross-subsidise the offer by charging higher fees to parents of younger children, while some have had to introduce additional “contributions” to cover the higher costs.

The childcare support system is creaking under these pressures. It urgently needs to be simplified and better explained to parents before it can become a meaningful way to help parents back into the workforce.

Lucy Warwick-Ching is digital and communities editor of FT Money. Email:; Twitter: @warwickching

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