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Free childcare allowance to rise to £2,000 per child

27th Mar 2014

A tax-free childcare allowance worth a maximum of £2,000 per child could benefit up to 1.9 million working families, according to a government announcement.

The online scheme will affect children up to the age of 12.  It is planned to come into effect from September next year.

David Cameron said it would benefit “squeezed” families, and Nick Clegg said that it would be very simple to use.  However, Labour believes that the assistance is “too little, too late”.

The parties are making rival offers to help families cope with the cost of childcare, which the opposition says has risen by 30% since 2010.  The Family Childcare Trust says that the average weekly cost for 25 hours of childcare for a child younger than two is £109.89.

Currently, employees of participating companies can reduce their childcare costs through a tax-free voucher scheme.  But only around 5% of UK employers, and 450,000 families, are signed up to it.

Ministers have announced that the new scheme, to come into force after the 2015 general election, will mean twice as many parents are eligible for support, including the self-employed.

When originally announced a year ago, the scheme was planned to offer a maximum support of £1,200 per child and would be open to families where both parents work and earn a combined total of less than £150,000 per year.  It was also going to be phased in over seven years.

Following a public consultation, ministers have agreed to increase the value of the childcare allowance to a maximum of £2,000 per child, and accelerate its implementation to ensure it is extended to all under-12s within its first years.

Parents will have to set up an online account, allowing them to get a 20% rebate per child on the annual cost of childcare up to £10,000 per year.

For example, if their annual childcare bill was £6,000, they would be entitled to £1,200 of tax-free support.

Mr Cameron said: “This is about helping all families, but particularly those families that do feel their finances are squeezed.

“I want to give families greater stability, greater peace of mind, greater security. And obviously being able to have £2,000 tax relief per child is going to be a huge help to millions of families across Britain.”