Childcare underspend of £600m set to be spent outside early years sector, Labour warns

Analysis of data published by the Office for Budget Responsibility (OBR) after last week's budget revealed that projected spend on the scheme over the next four years on tax-free childcare is likely to be £600m less than expected.

In March the government projected that between 2018/19 and 2022/23 it would spend £2.2bn on the scheme, which allows eligible parents of at least one child aged under 12 to claim 20 per cent of their childcare costs from the government, up to an annual limit of £2,000.

But figures published by the OBR show the government has revised down the expected spend for the same period to £1.6bn - £600m less than originally budgeted - in light of fewer parents taking up the offer than expected.

The Labour Party claims this money will not be reallocated to other areas of the early years sector, such as the extended 30 hours childcare entitlement which launched in September 2017, despite repeated warnings that it is underfunded.

Shadow early years minister Tracy Brabin said the government is "chronically underfunding their own policies".

"It is becoming ever clearer that the Tories' flagship offer simply isn't living up the promises they made in the election, and the consequences are being felt by parents across the country," she said.

"Fees are rising, free places come with hidden costs, and too many families aren't eligible for the support they need - while nurseries and other providers are being pushed to the brink of bankruptcy by a system that isn't working."

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Last week, a study by research agency Ceeda found the childcare sector is "systemically underfunded" and providers were receiving less money than they were five years ago.

Such research, among increasing numbers of nursery closures and provider concerns about their financial future, prompted the all-party parliamentary group for childcare and early education to this week launch an inquiry into early years funding.

Labour's analysis has led childcare sector leaders to accuse the government of choosing to underfund early years education, rather than being short of the resources required.

Pre-school Learning Alliance chief executive Neil Leitch said the sector was "in crisis".

He said the decision to return the unspent money to the Treasury suggested "pre-schools, nurseries and childminders are being left to struggle not because the government simply doesn't have the money for additional investment, but rather because it doesn't believe that there is a true need for it in the childcare sector".

"Survey after survey and report after report have made it clear that significant investment into the government's funded entitlement schemes is needed if the sector is to have any hope of remaining viable in the long term," said Leitch.

"We know that early care and education play a vital role in giving all children, regardless of background, the best possible start in life.

"How, then, can the government talk about improving life chances and ‘closing the gap', and then pass up an opportunity to better support the very sector that is key to achieving these goals?"

Liz Bayram, chief executive at the Professional Association for Childcare and Early Years (Pacey) said: "Any childminder, nursery or pre-school will be angry to read that £600m dedicated to supporting families with childcare costs has not only been under-used but also returned to the Treasury.

"At the very least it should have been repurposed to allow more families to get support, through increased funding for early education, early years pupil premium or any number of other areas. It also raises the question how this underspend has arisen? Do we need to revisit the criteria for tax free childcare when many low income families don't qualify and money goes to waste."

In February 2018, the government confirmed more than 190,000 parents had opened tax-free childcare accounts. However, it had previously projected 415,000 accounts to be active by November 2017.

The tax-free childcare scheme has been dogged by IT problems. In May 2017 parents complained they had been unable to resister.

In November 2017 the full rollout of the scheme was delayed as a result of the glitches. At the time Treasury minister Mel Stride said the government planned to do more to promote the scheme to address lower than expected take-up.

HM Revenue and Customs has been gradually rolling out tax-free childcare since April 2017. The money can go towards a whole range of regulated childcare, including nurseries, childminders, after-school clubs and holiday clubs.

The Treasury has been contacted for comment.