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£600m underspend on tax-free childcare will return to the Treasury

By Rachel Lawler
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The government will spend £600 million less on tax-free childcare this year than it initially estimated, according to the Office for Budget Responsibility (OBR).
Despite this underspend, the government will not reallocate the funds to other early education budgets. Instead, the unspent funds will be returned to the Treasury, according to notes released by the OBR following last week's Budget.
Low take-up
The OBR has previously noted that the tax-free childcare programme has helped less than 10% of the families the government was originally hoping to support. In its first year, the scheme under-spent by 95%.
This suggests that parents are struggling to use the scheme, or choosing not to, and comes after the Childcare Service website struggled with significant technical difficulties after its launch last year.
Childcare vouchers
This update follows the closure of the childcare vouchers scheme, which closed to new applicants last month.
The scheme was originally due to close in April but was kept open for an additional six months following pressure from campaigners.
This extension will cost the government an additional £50 million a year, as once families have started using the vouchers, they can continue to use it as long as they remain employed by a company participating in the scheme.
Funding concerns
The government has repeatedly come under pressure from the early years sector to review funding rates for the 30-hours childcare entitlement, which are currently due to remain fixed until 2020.
But rather than use the unspent funds from tax-free childcare to support any of the other early years schemes, the government has confirmed that the money will instead be returned to the Treasury.
Support for families
Angela Rayner MP, shadow secretary of state for education, commented: “The Budget has completely failed to provide children with the best possible start in life, and parents will once again be left without support in accessing the childcare they need.
“The fact that projected spending has fallen by hundreds of millions of pounds yet again means thousands of parents will not be getting the support they need with the cost of childcare.
“The next Labour Government will guarantee 30 hours of free childcare each week for all 2-4 year olds.”
Sector crisis
Neil Leitch, chief executive of the Alliance, said: “Given that childcare providers across the country have long been crying out for additional funding, the suggestion that government underspend on the tax-free childcare scheme is to be returned to the Treasury rather than used to support a sector in crisis beggars belief.
“Such a decision suggests that 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. And yet, 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.
“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? We urge the DfE to review this decision and to ensure that, if there is additional money available to the department, it will be spent where it’s so desperately needed.”
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