A warning has been issued over the Labour government's Tax-Free Childcare scheme, which offers up to £2,000 per child per year towards childcare costs. Despite 1.3 million families being eligible, around 800,000 are not using the benefit, according to Money Saving Expert.
Expert Concerns Over Scheme Complexity
Anna Stevenson, senior benefits specialist at Turn2us, said too many families struggle to understand what they are entitled to and how different schemes interact. “For parents on Universal Credit, the issue is particularly high-stakes,” she said. “They cannot receive Tax-Free Childcare and Universal Credit childcare support at the same time, and many may be better off using the Universal Credit childcare element, which can cover up to 85% of eligible costs. But understanding that choice is not always straightforward.”
Martin Lewis Criticises Name
Martin Lewis, founder of Money Saving Expert, criticised the scheme's name, calling it “appallingly misleading.” He said: “Calling the scheme Tax-Free Childcare was political spin. It's not about tax at all and isn't linked to your tax rate. A better name would be 'Working Family Childcare Top-up' because it's effectively a discounted savings scheme where you save and pay for childcare with a 25% top-up.”
The scheme works by adding 20p for every 80p parents save, up to £2,000 per child per year (or £4,000 for disabled children), covering up to £10,000 of childcare costs annually.
Government Response
An HM Revenue and Customs spokesperson said: “Research shows that almost 90% of customers have a good experience of the childcare service. As part of our efforts to improve customer service, we are undertaking work over the coming years to modernise the service.”
