It was used to pay for childcare for 569,000 children but around 1.5m families are thought to be eligible for the free money.

The number of families using the scheme has increased, from 477,000 in March 2023 for 577,000 children, according to the latest figures from the Government.

Yet many of the accounts that are open are also not being used. In March 2023, 55.4% of the accounts that were open were being used. This fell to 53.9% in June.

May saw the highest use of the scheme on record and the Government spent £53.6m on the scheme in June 2023, an increase of £12m on June 2022.

The scheme is available to help parents pay for childcare. For every £8 they pay into their tax-free childcare account, the Government adds £2 to a maximum of £2,000 per year or £4,000 per year for disabled children.

It can be used to pay for childcare costs. Currently, the UK has the highest costs out of any developed nation.

The tax-free childcare scheme is available for households who earn at least the national minimum wage but under £100,000. This applies to each parent or caregiver, not the joint income of the household.

However, the scheme has been criticised in the past for being complex especially as the account needs to be reconfirmed every three months.

It is separate to the 30 free hours or childcare that are available to most children when they turn three. The free hours scheme is currently undergoing a major change and, by September 2025, it will be available to children from nine months.

Uptake falls ‘far below original estimates’

Myron Jobson, senior personal finance analyst for interactive investor, said: “More and more families are making use of the Tax-free Childcare initiative, but the uptake of the scheme continues to fall far below original estimates. The Government’s impact assessment for Tax-Free Childcare estimated that around 2.3 million families will be eligible, of which 1.5 million are likely to have qualifying childcare costs.

“Yet only 470,000 families used Tax-Free Childcare for 569,000 children in June 2023. There is a clear chasm, not gap, between the number of eligible families and those with open account. There is also an alarming difference between the number of open accounts and those that were being used.

“The Government continues to spend less on the scheme than it had planned. The forecasted spending in 2019 was £865 million – but the actual spending in that year was £629 million less (£236 million).

“Greater and more creative promotion of the initiative is needed as a large proportion of parents were unaware of its existence.”