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Gov’t receives a complaint every hour about tax-free childcare

Written by: Danielle Levy
Disgruntled parents typically make a complaint every hour about the government’s tax-free childcare service, as uptake of the scheme continues to disappoint.

A Freedom of Information request by insurer Royal London has revealed that the Treasury received 1,830 complaints about its tax-free childcare service between November 2018 and the end of March this year.

This equates to one complaint every daytime hour since the scheme was fully rolled out and childcare vouchers – previously the main form of support – were closed to new applicants in October 2018.

Parents using the new tax-free childcare accounts receive 20 per cent from the government on whatever they put into the account, up to a maximum top-up of £2,000 a year per child. The scheme is available for those who earn less than £100,000 per year.

Childcare accounts were introduced in April 2017 for families with children aged 3 or under. The scheme was then rolled out to older age groups and became available to all eligible families from February 2018.

Falling short of forecasts

The complaints may help to explain the relatively low uptake of the government’s tax-free childcare scheme. While the number of families using the scheme has increased from 91,000 at the end of December to 125,000 at the end of March, representing a 37% increase, this is still a long way off the government’s forecasts.

With this in mind, Royal London estimates that less than one in 10 of families who qualify for the scheme are actually using it. The government had previously estimated that around 1.5 million families were eligible.

Childcare costs have continued to rise year-on-year, increasing by 4 per cent between 2018 and 2019. Today, they total around £1,000 a month for a full-time nursery place for a two-year old, according to the Family and Childcare Trust.

The average amount of top-up claimed in March was £114 for the month, with the bulk of accounts being used for one and two-year olds, who incur the highest childcare costs and whose parents may not have had the option to use vouchers in the past.

Vouchers versus top-ups

Parents who previously received vouchers can continue to use them for as long as they are offered by their employer.

For those who are still eligible, childcare vouchers offer basic-rate taxpayers the chance to save £933 a year per parent in tax. This totals £1,866 a year for a two-parent family.

For higher rate taxpayers, vouchers offer tax savings of £624 a year per parent.

Becky O’Connor, personal finance specialist at Royal London, noted that the cost of full-time childcare for a two-year old now exceeds the average monthly mortgage repayments in the UK.

“Tax-free childcare, while less generous for many families than the previous childcare vouchers system, offers some help towards these costs. But the system is admin-heavy and time consuming. The fact that parents with little time on their hands are making the time to complain speaks volumes,” she explained.

O’Connor added that the scheme remains poorly promoted and under-utilised.

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