Are tax-free childcare accounts working?

30 August 2023
The tax-free childcare account (TFCA) scheme has been around since 2017. It was broadly introduced to replace the previous scheme that allowed parents to acquire childcare vouchers, generally by sacrificing part of their salary before tax. It is open to most parents of children under the age of 12, or the age of 17 for children with a disability.

In March 2017, the Office of Budget Responsibility estimated that in the four years from 1 April 2017, the TFCA would cost the exchequer around £3bn. The reality was that the cost was much lower than that, at around £630m. Albeit a couple of the years impacted were during the pandemic which clearly would have had an impact on the use of childcare providers and in turn, people’s desire to utilise a TFCA.

The latest statistics for TCFA usage show that 469,830 families used accounts for 569,035 children in June 2023. The year before those figures were 391,440 families and 468,350 children, around a 20% increase in the number of families and a 21.5% increase in the number of children.  

Of the children benefitting from a TFCA, the vast majority of them are five years old and under – 475,090 in total which represents around 83%. That has fallen slightly from the year before when the figure was 86% but it highlights that there are large numbers of parents of older children who are not utilising the TFCA scheme. That may point to a lack of familiarity with the TFCA scheme as it did not exist when the children were younger. It would appear that more needs to be done to highlight the TFCA scheme to parents of older children.

On the face of it, the overall growth in the number of parents using the TFCA looks positive, with information campaigns by the government seemingly having an impact, but it is still a relatively modest fraction of the total number of children potentially eligible. According to survey statistics published last month by the Department of Education, in England alone, formal childcare was used by 47% of children, equating to approximately 4.6 million children. 

This includes statistics for children up to the age of 14, some of whom would not be entitled to benefit from TFCA, but interestingly the biggest increase in the use of formal childcare from 2021 to 2022 was for children between the ages of 12 and 14, an increase of 5% from 25% to 30%. Considering the government’s apparent underspend on the TFCA scheme to date compared to initial forecasts, perhaps the scheme should be expanded to include 12 to 14-year-olds as well, given that is the fastest-growing age group of children requiring formal childcare.

The TFCA has its critics and there remain many advocates of the previous childcare voucher system. Whilst there are positive steps in the right direction in terms of the number of families benefitting from it, it seems clear that it’s not reaching as many as it could. It looks like more needs to be done to advertise the scheme and educate families on how to benefit from it.