UK Families to Save £3,600 Annually with New Childcare Funding

The UK government has initiated a new childcare funding program, set to provide substantial financial relief for families with young children. According to the Institute for Fiscal Studies (IFS), households with toddlers are expected to save an average of £3,600 annually as the scheme commences this month.

This initiative marks the second phase of a three-part childcare provision expansion announced by Jeremy Hunt during his tenure as Chancellor. The program extends 15 hours of free childcare to all pre-school children aged nine months and above, a significant change from the previous policy that only covered three and four-year-olds.

The IFS analysis suggests that the primary beneficiaries of this new funding will be higher-income families already utilizing formal childcare services. For a family with a child under two years old paying average childcare prices, the savings on the newly free hours will amount to £3,600.

It's worth noting that the UK has one of the highest childcare costs among OECD countries. In 2023, the average cost of full-time nursery for a child under two in the UK was £14,836 per year. This new policy aims to alleviate some of this financial burden on families.

The government's childcare strategy has evolved significantly since the concept of free childcare was first introduced in the UK in 1998. The current plan includes:

• From April 2024: 15 hours of free childcare for two-year-olds
• From September 2024: 15 hours of free childcare for children aged nine months and above
• From September 2025: 30 hours of free childcare for all children under five

However, families where at least one parent earns more than £100,000 per year are not eligible for these free hours.

While the immediate financial benefits are clear, the IFS cautions that the measures may have limited impact on encouraging more parents to enter the workforce or increase their working hours, which was one of Hunt's stated goals. Research shows that around a third of children under two are already in formal childcare, and three-quarters of parents not using childcare cite personal preference rather than financial constraints as the primary reason.

The UK's birth rate has been declining since 2012, yet the employment rate for mothers has increased from 62% in 2000 to 75% in 2021. This trend underscores the growing need for accessible and affordable childcare options.

Christine Farquharson, IFS associate director, commented on the initiative:

"Against a landscape of funding pressures in many areas of public services, new childcare entitlements are one big place where the state is choosing to do – and spend – much more than it has done hitherto. The hope is that this will pay off by boosting employment and improving children's development. That's a question for future evaluation – but what seems clear already is that the biggest immediate effect will be to save families already using formal childcare a substantial amount of cash."

By the late 2020s, the IFS projects that 85% of the childcare hours funded through these new state entitlements will be for care that parents would have paid for anyway, with only 15% being used by parents taking advantage of the new opportunity to access childcare.

As the UK government invests in early years education, it's important to note that the quality of these services is regulated by Ofsted. The focus on "school readiness" has been a key driver in UK early years policy, reflecting the growing recognition of the importance of early childhood education in long-term development and social mobility.

While this policy represents a significant step in supporting families with young children, critics argue that more needs to be done to adequately support lower-income families and address the broader issues of childcare accessibility and affordability in the UK.