Budget: New £1bn childcare scheme for UK families

Families will be handed an annual allowance of £1,200 per child where both parents are in work, earn less than £150,000 a year and receive no tax credits, ministers will announce.

The package will be unveiled ahead of the Budget tomorrow being delivered by Chancellor George Osborne, who has promised that his spending plans will benefit “people who want to get on in life”.

Prime Minister David Cameron and Deputy Prime Minister Nick Clegg will set out the child care voucher system, which the coalition government claims will benefit 1.3 million families to start with across the UK, and eventually 2.5 million families when the scheme is widened.

The government says it will mean that in Scotland, 210,000 families with 310,000 children under 12 will be able to claim the support. Mr Cameron claimed that the scheme will benefit a typical working family with two children under 12 by up to £2,400 a year.

He said: “Too many families find paying for childcare tough and are often stopped from working the hours they’d like. That is why we are introducing tax-free childcare, saving a typical family with two children up to £2,400 a year.

“This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs.”

The scheme will be phased in from autumn 2015 and will replace the existing Employer Supported Childcare (ESC) arrangements, whereby employers are able to top up childcare costs to the value of £55 per week to their staff free of tax.

Coalition ministers say that under the existing scheme the cash is paid per parent, rather than per child as outlined under the new proposals.

The UK government says that the maximum support available to families for each child under the “salary sacrifice” option is £933 compared to the £1,200 it says will be available under the shake-up of childcare support.

However, the reforms were criticised by SNP MSP John Wilson, who warned that annual payments of £1,200 to parents would fall short of the support needed by struggling families.

He said: “The key issue is that £1,200 doesn’t buy a lot of childcare. A major problem is that £1,200 falls way short of what’s required to provide all year round childcare.

“Many parents in Scotland will still be unable to afford the level of care required for them to be able to undertake full employment. The UK government, if it is serious about employment as a route out of poverty, has to make the provision of childcare an essential strategy to get people back to work.”

Ministers say that just 5 per cent of parents benefit from the existing scheme, and that five times that amount will receive payments under the changes.

The £1,200 payments will be made to working parents of children under the age of five earning less than £150,000 for the first year of operation, although ministers say the scheme will be built up to include under-12s.

Parents eligible for the scheme will receive the support through voucher accounts mainly available online.

Mr Osborne warned of “more difficult decisions on public spending” and said he would set out the scale of the latest squeeze on public spending over the next few years in tomorrow’s Budget. He has revealed that plans for a flat-tier pension, worth around £144 a week, are to be brought forward to 2016 – a year earlier than planned.