Free childcare to children as young as nine months and eligibility criteria

23 March 2023
The Spring Budget contained good news for parents of young children and parents-to-be, primarily in the proposed extension of free childcare for working parents in England. Currently, eligible working parents are entitled to 30 hours of free childcare a week for 38 weeks of the year for children aged three and four years old. A phased in extension to free childcare will see two-year-olds qualifying for 15 hours of free childcare a week from April 2024, with the full 30 hours being available to all children aged between nine months and school age from September 2025.

To be eligible for this free childcare, parents and their partners generally must be employed or self-employed and expect to earn (on average) the equivalent of 16 hours pay at the National Living Wage per week. Free childcare may also be available to those on maternity, paternity or adoption leave, as well as those who are unable to work due to disability or caring responsibilities. However, where a parent or their partner individually earns more than £100,000 per annum, the household loses their entitlement to free childcare.

In a report published by the IFS last week, the significant impact of the £100,000 cliff-edge threshold was considered. It concluded that “a parent with two children under three whose childcare provider charges England’s average hourly rate for 40 hours per week would, after these reforms, find that their disposable income (i.e. earnings net of tax and childcare outgoings) falls by £14,500 if their pre-tax pay crosses £100,000. Disposable income would not recover its previous level until pre-tax pay reached £134,500, meaning a parent earning £130,000 would be worse off than one earning £99,000”.

Based on our calculations, we estimate that households with one parent earning £87,000 in the 2021/22 tax year will be unable to benefit from the free childcare provisions in 2025/26, when the childcare provisions are rolled out in full. This assumes the individual’s earnings increase in line with the latest projected wage inflation figures published by the Office of Budget Responsibility.

Some people may argue that individuals earning more than £100,000 a year should be expected to meet their own costs of childcare and it does make sense that a line should be drawn at an income level. However, is it fair that a household benefit should be determined based on the earnings of one parent?

Under the current rules, a family would be entitled to receive free childcare where two parents earned £99,999 each, which may be a realistic prospect for parents who have their own business and are able to control their income to achieve this position. Whereas another family with one parent earning a part-time National Living Wage and their partner earning £100,000 – say as an NHS clinician – would not be able to benefit from the free childcare at all.

Whilst the extension of free childcare is undoubtedly good news, the criteria for the scheme does raise a question of fairness. It does not seem fair that a household can have a combined gross income of approximately £90,000 more than another, whilst qualifying for the scheme simply because their earnings are more evenly spread out between working parents. Whilst the UK has applied independent taxation for several decades now, this begs a question as to whether entitlement to free childcare should instead be assessed based on total household income. As it stands, the rules may inadvertently act as a barrier to senior career progression for some individuals.
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Matthew Todd
Manager
AUTHOR
Avatar Gender neutral
Matthew Todd
Manager
AUTHOR