Cameron increases childcare support to £2,000

George Osborne will officially announce his plans for childcare in his Budget speech tomorrow. Picture: Getty

In what is being billed by Downing Street insiders as a “childcare revolution” for two million families across the UK, including 200,000 in Scotland, Prime Minister David Cameron and Deputy Prime Minister Nick Clegg are set to announce that parents of all under-12s will get one-fifth of their total childcare costs paid by the government, up to £2,000 a year.

The measure – which will be formally introduced in Chancellor George Osborne’s Budget tomorrow at a cost of £750 million – will come into force in April 2015, just ahead of the General Election a month later.

Coalition ministers see childcare affordability as one of the key cost-of-living battlegrounds among voters.

Parents will also have access to a full year’s worth of credit to help pay for childcare costs up front, instead of collecting credits monthly.

The funding for childcare is aimed at tackling the increasing costs of living and allowing parents to re-enter the job market, boosting economic activity and growth.

Mr Cameron said: “Tax-free childcare is an important part of our long-term economic plan. It will help millions of hard-pressed families with their childcare costs and provide financial security for the future.”

Mr Clegg said: “All children deserve the best start in life. As, together, we build a stronger economy for Britain, I’m committed to making sure that we create a fairer society too. This package of support will provide a childcare boost for millions of hardworking families.

“We want to ensure that everyone can get on and succeed.”

The new childcare support will be accompanied by a £50m pupil premium scheme for three- and four-year-olds from disadvantaged families in England, to provide up to 85 per cent of the childcare costs.

The scheme will also see £5m being passed on to the Scottish Government, which is not compelled to use the funds for childcare but will be under pressure to bring forward existing plans for 1,140 hours of childcare for all pre-school children.

Until now, SNP ministers have said such a scheme was not worth introducing unless Scotland is an independent country, as any income tax receipts from parents freed up to go back to work are sent to the Treasury in London.

But a Downing Street insider said: “People will draw their own conclusions, but they will note we are not offering this on the basis of a referendum result.”

The childcare scheme is an improvement on a package proposed last year which would have only affected families with children aged up to five in the first year and rolled out to other ages up to 12 over the following seven years.

Under the original scheme, the government would have provided up to £1,200 a year, but this has now been increased to £2,000.

The tax-free childcare will also be open to more than twice as many families as currently use Employer Supported Childcare (ESC) vouchers and, unlike ESC, will not depend on employers offering it.

In addition to giving support to the self-employed, the scheme has also been adjusted to ensure those working part-time, earning £50 per week and above, those on maternity, paternity or adoption leave and those starting their own business who may not meet the minimum earning requirement will be included, giving them government help with childcare costs for the first time.

Treasury insiders have said that the extra cost will be funded by diverting cash from the Universal Credit scheme, which is aimed at getting people back to work.

Whitehall insiders said that the improvements made were a result of consultations with the public after the Prime Minister and Deputy Prime Minister announced the original policy last year.

In an attempt to make the funding more accessible, new online tax-free childcare accounts will be set up and run by HM Revenue & Customs, in partnership with National Savings & Investments.

The accounts will make it easier for parents and providers, involve no fees and give parents security over their money, allowing them to build up credit for use when they need it most, for example during the school holidays.

The scheme is also meant to benefit childcare providers, who will be able to receive each child’s payment from a single account, rather than keep track of multiple payments from different bank and voucher accounts relating to a single child.

Government sources have also made it clear that the policy is meant to help underpin an “entrepreneurial economy” with the rules tailored to support entrepreneurs and those self-employed who do not at first meet the minimum earnings requirement to be eligible for the scheme.

But the scheme will also support all working families where the parents earn at least £50 per week, unless one of the parents earns over £150,000 or already receives support from tax credits, Universal Credit or ESC.

There has been speculation that support for childcare could be accompanied by further welfare cuts, particularly for single parents.