Childcare Vouchers

Childcare Vouchers and Expanded Offer of 10 Hours Free Childcare to 250,000 2 Year Olds in 5 Years Time

30 October 2009

The Government is committed to giving children the best possible start in life and supporting parents to balance work and family life.

Tax credits provide support for childcare costs worth on average £68 per week for 470,000 families, whilst all parents are entitled to free nursery places for their 3 and 4 year olds.

We are expanding nursery education entitlements and have set out our longer term ambition to provide universal free early learning places for 2 year olds.

Kids with carer

More than 20,000 free places for 2 year olds are already being offered to some of the most disadvantaged children in every local authority area in the country. But we recognise the need to do more.

That is why the Prime Minister announced at the Labour Party Conference this year that by 2015/16, 250,000 children will receive 10 hours of free early learning a week - around 40% of all 2 year olds.

To fund this significant expansion in provision (which will benefit parents on low and middle incomes), at no extra cost to the taxpayer, we are phasing out badly targeted tax reliefs on Employer Supported Childcare vouchers.

As it stands, the childcare voucher tax relief significantly benefits higher rate tax payers. About a third of the funding for Employer Supported Childcare goes to the 6% of parents who pay tax at a higher rate and much of the benefit also goes direct to large employers.

However, no parents currently using the voucher scheme will be affected in the next 5 years. This is because we are phasing out the tax relief on childcare vouchers so existing beneficiaries will not lose out. Parents should not be concerned that there will be a sudden change to the help they receive.

Nor is the Government abolishing childcare vouchers, as some have claimed. The Treasury will be phasing out the tax and national insurance relief employees receive for childcare vouchers from April 2011 but employers will still be able to offer childcare vouchers to their workforce and we expect that many companies will continue to provide support for childcare. Vouchers are now well established and they do not need to be supported by further tax relief. This is about focusing resources where they are most needed.

After the tax relief is phased out parents with low and modest incomes will continue to benefit from childcare support through tax credits. This is much more generous than the tax relief on vouchers. For example, a family with two children earning £25,000 and facing childcare costs of £100 per week would receive support for the full 80% of their costs, worth around £4,150 per year. If they earned £35,000 instead, they could still get around £2,000 per year.

parent and mum

All parents will also benefit from the expansion of free childcare places for 3 and 4 year olds (12.5 hours, rising to 15 by September 2010) alongside extended schools, providing access to childcare and activities through schools from 8am to 6pm. 86 per cent of secondary and 81 per cent of primary schools are already offering access to extended schools services.

Extending free provision for 2 year olds is a good way of targeting government support for childcare. Evidence tracking large groups of children over time is clear that the benefits to learning skills are greater for children starting part-time pre-school when they are two, especially for children from disadvantaged backgrounds. The positive effects are long-lasting over time.

Outcomes from our pilots for disadvantaged 2 year olds support previous evidence suggesting that where provision is high quality, children benefit. That's why the Prime Minister announced we would extend the programme to all 2 year olds. This is the first step to achieving that.