If there’s one thing we know by now as working parents living in the UK, it’s that the cost of child care is astronomical. In fact, data from the OECD states the UK is the third most expensive country for childcare IN THE WORLD so it’s no wonder the question on every parents mind is how to save money on child care costs?
According to the National Childbirth Trust, the average cost of full time nursery for a two year old is £263 per week. My eldest child attends a private nursery 4 days a week (not even full time) and the price for this level of care would be over £12,000 a year. That is over a third of the median salary for a full time employee according a 2022 employee earnings report from The Office of National Statistics. Not to mention the fact that this figure doesn’t even take into account the disparity in earnings between men and women.
In modern Britain, new parents don’t necessarily have the ‘village’ we are often told it takes to raise a child. Families live at further distances from each other and with the state pension age ever increasing, relying on grandparents for support with childcare isn’t always an option. For some parents, especially women, the cost of childcare can be the difference between going back to work full time, part time or not at all which only serves to further exacerbate the disparity between the financial status of woman compared to men.
With this in mind, it’s no wonder that when I talk about childcare costs over on my social media channels, multiple women have told me that they can’t afford childcare or that the cost of childcare is delaying or preventing them from having another child.
So if you’re a parent, expecting a child or even just starting to plan for a family and you are using or considering paid childcare – it’s absolutely crucial that you know everything there is to know about how you can get help to save money on childcare costs. There are four main schemes that might go a little way towards saving you money on fees that so let’s get into it…
1. TAX FREE CHILDCARE
The old days of childcare vouchers are gone and they have been replaced with Tax Free Childcare. This is a government scheme that will give you back the equivalent of the tax on your childcare bill (AKA 20%). This means you can save a maximum of £2000 a year on your childcare costs.
Yes, you read that right but I’ll say it again: THE GOVERNMENT WILL PAY UP TO £2000 OF YOUR ANNUAL CHILDCARE BILL! Despite how much money this could save for so many working parents, I remain continually astonished by the number of people who simply do not know this scheme exists.
In a nutshell, eligible parents can apply for and open a tax free childcare account and pay in 80% of their childcare bill. The government will top it up by 20% and you can then pay your childcare provider the full amount from this account. You simply supply your childcare provider with your account reference so they can identify the payment as originating from you.
As I mentioned, this initiative is generally for working parents and if you are part of a couple then both parties need to be working (although there are some limited exceptions to this). Because the upper earnings limit for tax free childcare is £100,000 most working parents who meet the minimum earnings threshold (which equates to around 16 hours per week of work) will be eligible for this scheme.
Unlike the other options in this list, you can continue to use tax free childcare until your child is 11 meaning it can be used for before and after school programs and holiday clubs.
For a more in depth deep dive on Tax Free Childcare, read my ultimate guide by clicking this link.
2. 15/30 HOURS ‘FREE’ FOR 3 AND 4 YEAR OLDS
I always put the word ‘free’ in quotation marks when talking about these schemes because (and if you didn’t know this, let me apologise in advance) IT. IS. NOT. NECESSARILY. FREE. If you replace the word ‘free’ with the word ‘funded’ your expectations will probably be more in line with reality. At the very least you are likely to pay a supplement for meals and nappies but at worst, you could still have a substantial bill.
What’s more, whilst most working parents will be expected to be at work for 52 weeks of the year, this funding actually only covers term time which is 38 weeks. There’s a whole heap I have to say about how this scheme works so if you need more information on the intricacies then I would encourage you to read more about the true cost of 30 hours ‘free’ here.
But now I’ve broken the bad news, let’s focus on the positive. If you have a 3 or 4 year old child then they WILL be eligible for one of these two schemes.
Firstly we have 30 hours ‘free’ which is another government scheme aimed at working parents. The upper earnings limit is the same as with Tax Free Childcare at £100,000 a year meaning that many will benefit so long as their childcare provider is signed up to the scheme. Never fear, if you don’t qualify for the 30 hours scheme because you earn either too much or too little, then you WILL qualify for 15 hours as this is available to ALL children, regardless of income.
Depending on which scheme you qualify for, you can receive funding towards either 15 or 30 hours of your 3 or 4 year old child’s care by applying. Regardless of its limitations, this scheme will at least assist in lowering your childcare bill even if it doesn’t wipe it out entirely.
3. ‘FREE’ CHILDCARE FOR 2 YEAR OLDS
Ever wondered why some children have funded nursery hours earlier than others? This scheme is probably the explanation. If you have a 2 year old and are in receipt of certain benefits including, but not limited to, income based Jobseeker’s Allowance or Universal Credit with a household income of less than £15,400 a year (after tax and not including benefit income) then you may be eligible for 15 hours ‘free’ childcare.
2 year olds under the care of their local authority, care leavers under certain conditions, those with an EHC plan and children who are eligible for disability living allowance will also qualify.
Be aware that there are also rules around the maximum amounts you can have in savings to be eligible for this scheme.
Again, like the 3 and 4 year old funding, it’s not necessarily free and at the very least you are likely to be asked to pay a supplement for nappies, wipes or meals. In addition, and like 30 hours, you don’t actually get 15 hours a week throughout the whole year as you might expect because this scheme applies to is term time only. Your provider may ‘stretch’ this across the whole year but that means you will receive less hours per week (see my 30 hours article to better understand the implications of this).
4. FLEXIBLE WORKING
When it comes to returning to work after having a baby, it’s not just government support you should turn to but also your employer. The gov.uk website states that ALL employees (not just parents or carers) have the ‘right to ask’ for flexible working providing you have been with your employer for at least 26 weeks. There are proposals to remove this requirement and allow a right or request flexible working from day one but this has not yet been implemented.
Whilst your workplace can refuse your request they do need provide a sound business case as to why or risk being taken to a tribunal. Flexible working can take many forms whether it be working from home to cut down the commute, compressed hours, part time hours or term time working. All of these options may allow you to reduce the amount of days or sessions your child needs at nursery so there are many ways you could use flexible working to cut down on the necessity for paid childcare and save money.
HACK THE SYSTEM
The absolute ‘must know’ hack to take away here is that if you are eligible for the 30 hours scheme then you can use it AT THE SAME TIME as tax free childcare. Again, there seems to be a lack of knowledge and understanding that this is the case so I’m here to tell you that it is. Double up on those childcare savings while you can!
CONCLUSION
Parents and guardians are never going to be able to escape the fact that childcare in the UK is very expensive. But, if you use all of these options to your advantage, by the time your child becomes eligible for their funded hours you should be seeing a significant reduction in your childcare bill.
Happy Budgeting!
Leigh