Working families to get more help with childcare costs

The cost of childcare is a major concern for working families struggling to keep on top of debt and make ends meet every month.

In an attempt to ma…

The cost of childcare is a major concern for working families struggling to keep on top of debt and make ends meet every month.

In an attempt to make working more worthwhile for parents, the government will be rolling out a new initiative allowing them to save a considerable amount when using childcare services.

Once fully up and running, the Tax-free Childcare scheme will be worth up to £1,200 per child, and will therefore save a typical working family with two children under 12 up to £2,400 a year. The plan enables parents to receive 20 per cent of their yearly childcare costs, up to £6,000 per child, from the government.

The initiative rolls out from autumn 2015 and will ultimately be opened up to around 2.5 million families. When it begins, all children under the age of five will be eligible, which means 1.3 million families can make savings. Over time the scheme will build up to include children under 12.

While visiting a nursery in Wandsworth, prime minister David Cameron said: "Too many families find paying for childcare tough and are often stopped from working the hours they'd like."

"This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs," he added.

Mr Cameron was also given the backing of deputy prime minister Nick Clegg, who said the extra boost in finance would help working families who are currently finding it very difficult to budget.

However, Labour was less impressed by the scheme with shadow education secretary Stephen Twigg claiming the government was reacting too slowly to the problem which is seeing families fall into debt over childcare costs.

"Families need real help with the cost of childcare now, not promises of help in two and a half year's time," he remarked.

Existing tax credits allow for low income families to have 70 per cent of their childcare costs covered and this is set to rise to 85 per cent from 2016 when the new universal credit comes in.

However, the Resolution Foundation thinktank performed a study that found only 38 per cent of low-paid families will have 85 per cent of their childcare bill covered by the government. The remaining 62 per cent will only receive 70 per cent, meaning they will miss out.

The foundation said that part-time workers in particular would be hit the hardest.

News on the reforms to childcare will be welcomed by working families who are struggling with their finances. An extra £1,200 per child will go a long way in helping household budgets, but many will be worried about what to do between now and 2015.

With debt mounting up, families are venturing into their overdrafts and getting into more credit card debt just to pay for daily living costs. Taking out a debt consolidation loan could enable a working family to pay off less each month, freeing up money for necessities such as childcare.

By Amy White

Find out more about money management on the ClearDebt blog.

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