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Government announces update to childcare incentives

Are childcare costs discouraging parents from returning to work? That could be the case, given that the average cost of sending a child under two years old to nursery for 50 hours a week is £263.81. 

Last week’s budget has fondly been nicknamed the ‘back to work budget’, thanks to the focus on encouraging the population back into the workplace. This comes as the number of 16-64 year olds in employment has not yet returned to pre-pandemic levels, despite everyday life seemingly being back to normal. As it stands, there are 8.86 million economically inactive people, currently not seeking paid work. One reason for this is often parents struggling to afford childcare costs, so choosing to look after their children themselves. To help counteract this, the government announced new childcare incentives to counteract the currently extortionate childcare costs, and encourage unemployed parents into work. 

The free incentives are applicable for approved childcare, which is childcare provided by a:

  • registered childminder, nanny, play scheme, nursery or club
  • childminder or nanny with a registered childminding agency or childcare agency
  • registered school
  • home care worker working for a registered home care agency.

What are the main changes to childcare?

At the moment, working parents with children aged three to four are already entitled to 15 hours of free childcare each week, or 30 hours if both parents are in work and earn at least the national minimum wage. The government announced plans for working parents to eventually be able to access 30 hours of free childcare per week, for 38 weeks of the year, from when their child is 9 months old and up until they start school. For parents who need to pay for childcare for more than 38 weeks per year, the entitlement can be spread over a higher number of weeks to balance out costs. 

The incentive is set to be rolled out in the following stages:

  • April 2024: all working parents of two year olds can access 15 hours per week
  • September 2024: all working parents of children between nine months and three years old will be eligible for 15 hours per week
  • September 2025: all working parents of children between nine months and three years old will be able to access 30 hours free childcare per week.

To support this, the government plans to substantially increase the hourly rate paid to providers to deliver the existing free hours offered. This includes providing £204 million additional funding this year, before increasing to £288 million by 2024-25.

For parents who receive Universal Credit, usually childcare support is paid in arrears. Instead the government will now pay parents up front, meaning that low-income families will struggle less to afford childcare, hopefully alleviating the barrier to working. Not only this, but the government will increase the Universal Credit childcare cap from £646 to £951 for one child, and from £1,108 to £1,630 for two children. 

Additional support

In an attempt to encourage more people into the childminding profession, the government has announced start-up grants for individuals who choose to register with a childminder agency. Those who register with Ofsted will receive a start-up grant of £600, whereas those who register with a childminder agency will receive £1,200.

Local authorities in England will also receive £289 million towards wraparound childcare provision in schools, across two academic years from September 2024. This will enable parents to work the standard 9-5 workday, without having to collect their children from school at the standard school-close time. 

The information in this article is taken from the 2023 Spring Budget, which was announced on 15th March 2023.

You can read our full Spring Budget summary here.

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