Today the Chancellor delivered the Spring Budget and there were a couple of interesting announcements around childcare funding and Child Benefit. Let’s take a closer look.

Reforming Child Benefit

The High Income Child Benefit Tax Charge currently impacts households where at least one parent is earning over £50,000. For every £100 you earn over the threshold you have to pay back 1% of the Child Benefit you’ve received. The tapering element means that by the time you reach a £60,000 salary you’d have to pay it all back.

The changes coming into force from April mean the threshold will rise to £60,000, with a top taper rate of £80,000.

But this still leaves us in the strange position from April where a household with both parents earning £59,999 will receive full Child Benefit, whereas a household with one parent earning over the threshold but with a much lower household income will be taxed higher.

That’s why the Chancellor announced fundamental reforms to Child Benefit so that from 2026 it will move to a household system. There are few details of how this will work in practice at the moment, but in theory it seems to be a much fairer system.

Childcare

Whilst the majority of the debate around the price of childcare focuses on the costs to parents, early years providers experience their own struggles and are increasingly finding it difficult to continue operating. A mixture of insufficient funding from government, inflation and the cost-of-living crisis have seen the number of providers decrease and the cost of places increase. 

Funding of the free entitlement is determined by the Early Years National Funding Formula (EYNFF). Whilst the funding rate has continued to rise, analysis by the Institute for Fiscal Studies suggests that when providers’ costs are taken into account, core funding in 2022/23 was 17% lower than a decade previously. With the majority of the market controlled by government, setting the funding rate at an adequate enough level to entice providers to deliver the free entitlement is key in maintaining sufficient supply.

The measures announced today guarantee rates paid to childcare providers will cover the expansion of the free entitlement. Despite this promise, I received an email from my own childcare provider before the Chancellor had finished delivering the budget statement saying they would be increasing costs at a higher rate than they have done before due to ongoing challenges, including the increase in the National Living Wage.

Pregnant Then Screwed have called for the funding formula to be indexed against the National Living Wage to ease the pressure on providers when wages rise. We support that call and believe it’s not too late for the government to go further to support the childcare sector.

For information on the wider implications of the Budget on your household finances, take a look at this blog from MoneyHelper.

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