How Jeremy Hunt's free childcare promise could all end in tears

Working parents have been celebrating this week after Jeremy Hunt announced a huge expansion of free childcare in England, for every baby over the age of nine months right up until the start of school.

The size of the promise took everyone by surprise - but will it really mean every working family saves money?

We looked into it.

What has Jeremy Hunt promised? The chancellor has pledged 30 hours of free childcare per week during term time to all children above the age of nine months if both parents work 16 hours a week or more. That means, in theory, more parents will be able to afford to return to work as soon as their maternity pay runs out.

I’ve got young kids. How much will I save? A full-time nursery place costs on average £15,000 a year for one child between the age of one and three. In London (where it is most expensive) childcare now eats up half a full-time wage. According to the government, Hunt’s proposals will mean working families with a child below school age will save around £6,000 a year.

That’s big! Yes. The Institute of Fiscal Studies described the plans as creating a whole new branch of the welfare state that puts “Whitehall in charge of the price of 80 per cent of all pre-school childcare in England.”

Sounds great... what’s the catch? Well, nurseries say they can’t afford to offer state-funded places at the level of investment the government has provided. They warn they’ll go out of business, or be forced to choose not to offer free places, leaving it even harder to find a nursery place at all.

Could that mean fees actually go up? Yes. The UK already has among the highest childcare costs in the world, and that rate is now likely to rise. Many nurseries say they will be forced to simply raise their fees further to cope, and put up charges for essential provisions such as nappies and food - all cutting into savings for parents. (Chart above based on latest OECD figures)

Does that mean staff will be paid more? Not likely. Most earn the minimum wage of just £9.50 an hour, yet many are parents needing childcare themselves. Academics say this creates a “poverty trap” and pushes the carers we need out of work. But a report by the Fairness Foundation revealed that 80 per cent of parents think it would be better for parents and staff if early years workers were paid more - a problem the chancellor failed to address.

Hang on, didn’t Hunt relax the rules around staffing levels? Yes, the government promised to allow nurseries to reduce the staffing ratio from four to five children per carer at the age of two. But many childcare providers question how safe that will be, and what effect it will have on outcomes for children. Some say they will keep their lower ratios but charge more for a place.

What about help for the poorest? Hunt committed to paying for childcare upfront for workers on low incomes claiming universal credit - which is a barrier to affording to work - and also increased the threshold for claiming additional childcare costs back to £931 for one child and £1,630.

Will wealthier parents benefit more than poorer ones? That’s still possible. Although the measures won’t be fully introduced until September 2025, those with an existing place reserved in childcare - more likely to be wealthier households - will benefit while others may still struggle to find a spot. And when you wrap in pension tax cuts on top, a typical household is £205 better off, but just 6 per cent of that gain is going to the poorest fifth of families, according to the Resolution Foundation.

What does this mean for women’s careers? Currently women in their 20s and 30s with children are less likely to be in work than other groups (see chart). According to Ben Willmott, head of public policy at the Chartered Institute of Professional Development, the policy is a “game changer” that will make it much easier for women to stay in work and protect their future earnings. “This can help avoid the loss of skills and conference that can be caused by spending too long out of employment and boost gender equality,” he said.

And, presumably, boost the tax take too? Here’s where it gets complicated. As the free hours are not available to anyone earning over £100,000, a parent of two children under three using 50 hours of childcare a week would see a £20,000 drop in disposable income if they earned over that threshold. Disposable income would not recover unless they got a huge pay rise to £144,500. That means many parents will artificially keep their salary down to protect their free hours of childcare - and they won’t pay any extra tax either.