Childcare costs outstrip earnings: how to get help

Think tank warns over childcare costs. We explain all the help you can tap into

Preschool children playing with colorful shapes
(Image credit: Getty images)

Childcare costs are outstripping earnings for tens of thousands of low income households, think tank IPPR [Institute for Public Policy Research] has warned. 

It costs an average £138 a week for a part-time (25 hours) nursery place for a child under the age of two. For full time (50 hours), it’s an average of £269.86, or £14,030 a year, according to Coram’s Family and Childcare report.

The average disposable household income is £31,000 - meaning many families could be spending almost 50% of their income on childcare, leaving little to cope with other rising living costs.

The IPPR says the “complex and incomplete patchwork” of childcare entitlements, benefits and allowances for working parents in England is leaving many struggling with costs often outstripping potential earnings.

It argues that rising childcare costs as parents increase their working hours amounts to a tax on workers.

IPPR’s associate director, Rachel Statham, said: “As the cost-of-living crisis pushes more families into financial stress, rising childcare costs are increasingly unaffordable and risk pushing parents of young children out of the workforce altogether.

“We urgently need reform to simplify and expand childcare provision. It’s time for a childcare guarantee to lower barriers for parents getting back into or getting on in work, to reduce costs for families with children, and to ensure every child has access to high quality early years education.”

The IPPR has called for 15 hours of free childcare to be made available to all pre-school children; currently, it is only available to children aged three to four. IPPR said this would close the gap between the end of parental leave and the current start of free available childcare hours.

Help with childcare costs

The government has had very little to say about tackling rising childcare costs - although there was a small mention at the start on Kwasi Kwarteng's 'mini-budget', there are no details as of yet as to how the government plans to help families.  In there meantime, here is a run-down of the help you can tap into to help with childcare costs.

Tax-free childcare - get up to £2,000 a year

HMRC estimates around 1.3 million families are missing out on up to £2,000 (or £4,000 if you have a disabled child) of help towards childcare costs by not using the tax-free childcare allowance.

If you are a working parent with children under age 11 (17 if you have a disabled child) and earn at least £152 a week and less than £100,000 - you can get a £2 boost for every £8 you pay for childcare. See our article on tax-free childcare for details on how the scheme works and how to apply for it. 

Tax-free childcare is not available to you if you are using the childcare voucher scheme via your employer. The childcare voucher scheme is closed to new entrants, but you can move to the tax free childcare scheme. You might however, be better-off with childcare vouchers if you have children older than age 11 or are on certain benefits - use the government’s childcare calculator to work out which scheme would be better for you.

Child benefit - who can get it?

Thousands of families are failing to claim child benefit despite being entitled to it - possibly due to the complex rules around it.

If you have a child under age 16 (or 20 if they are still in education) then you can claim child benefit worth £21.80 per week for your first child and then it’s £14.45 for additional children.

But, there are some rules which impact exactly how much you get:

  • If you and your partner earn less than £50,000 each, you can claim and keep the full amount
  • If you or your partner earn between £50,000 and £60,000 each, then the High Income Child Benefit Charge kicks in and means you will have to pay some of it back as extra income tax; this is 1% of the child benefit for every £100 of the income between £50,000 and £60,000. You pay this back by completing a self-assessment tax return.
  • If you or your partner earn over £60,000 then you will pay a tax charge that essentially cancels out the payment. But, you should still register for it so that you benefit from National Insurance credit, which then counts towards your state pension. If you are not working, then without the credit, you could face a state pension shortfall of as much as £20,000.

How to get 30 hours of free childcare

If your child is between the ages of three and four, you could get as much as 30 hours’ free childcare per child. It's available in England (there are different schemes in Scotland, Wales and Northern Ireland). To be eligible, you must be working and earn at least £120 a week and neither you nor your partner earn more than £100,000 per year.

If you don’t qualify for 30 hours’ free, three to four-year-olds can still get 15 hours of free childcare per week.

Help via Universal Credit

If you’re on Universal Credit, you could claim back up to 85% of childcare costs for a maximum of up to £646 for one child and £1,108 for two children - as long as you use a registered childcare provider and proof of costs.

Kalpana Fitzpatrick
Digital Editor, MoneyWeek

Kalpana is the Digital Editor of sister site MoneyWeek.

She’s an award-winning journalist and author of Invest Now: The Simple Guide to Boosting Your Finances  and a children's book Get to Know Money  - with extensive experience in financial journalism. Her work includes writing for a number of media outlets,  including national papers and well-known women’s lifestyle and luxury titles, where she was finance editor for Cosmopolitan, Good Housekeeping, Red and Prima.

She started her career at the Financial Times group, covering pensions and investments.

As a money expert, Kalpana is a regular guest on TV and radio; appearances include BBC One’s Morning Live,  ITV’s Eat Well, Save Well, Sky News and Channel 5's 30 money saving tips series.

She was also the resident money expert for the BBC Money 101 podcast.

A well-known money and consumer journalist, Kalpana also often speaks at events.

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