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Chancellor Jeremy Hunt announced a whole host of reforms to the UK childcare system during Wednesday’s Spring Statement in an effort to curb concerns about rising costs and encourage people to go back to work. The move could also provide parents with thousands more to add to their pensions, an expert has said.
Announcing the new measures to the House of Commons, Mr Hunt said: “We have one of the most expensive systems in the world. Almost half of non-working mothers said they would prefer to work if they could arrange suitable childcare.
“For many women, a career break becomes a career end. Our female participation rate is higher than average for OECD economies, but we trail top performers like Denmark and the Netherlands. If we matched Dutch levels of participation, there would be more than one million more women who want to work, in the labour force. And we can.”
He continued: “I don’t want any parent with a child under five to be prevented from working if they want to, because it’s damaging to our economy and unfair mainly to women.”
Commenting on the Budget that “blew expectations out of the water”, Myron Jobson, senior personal finance analyst at interactive investor, said: “This blockbuster Budget was a case of everything, everywhere all at once with announcements seemingly impacting every facet of society.”
However, he continued: “Among the biggest winners of the Budget are parents, with the announced extension of free childcare of 30 hours a week for working parents to cover children from nine months is a game-changer.”
Th 30-hour offer will start from the moment maternity or paternity leave ends, which Mr Jobson said: “Could finally stack the numbers in favour of many parents who have given up on full-time work because of eye-watering childcare costs – a fate that is statistically experienced by mothers most.
“As such, it could prove to be an important step forward towards addressing the gender pay and pension gap. interactive investor estimates that the gender pension gap alone is £68,000.”
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Providing an example, Mr Jobson said: “A 30-year-old earning £33,000 and with eight percent of qualifying earnings being paid into a pension (the minimum auto-enrolment contribution under current rules stipulating the employer contributes three percent) could boost their pensions savings by £5,500 by working for an extra two years and three months because of the extension of free childcare.
“Assuming investment growth of five percent per year, which is just a scenario, over the course of a working life, by age 68 that could mean an extra £33,000 in a pension pot – a significant uptick which could help ensure a more comfortable existence at retirement.”
The full benefit of the policy will not be felt until September 2025, as the measures will be phased in gradually from April 2024 onwards.
Mr Jobson added: “Plans to start paying childcare costs upfront for those on universal credit and letting people continue claiming sickness and disability benefits if they find work would remove significant barriers that stop some of the most vulnerable members of society from building a career.
“So too is the newly announced new voluntary employment scheme for disabled people, called Universal Support. The ambition on wraparound care for children from 8am to 6pm is also a boon.”
New childcare budget 2023
The current system, which provides 30 hours of free childcare to eligible households working at least 16 hours a week, will be extended to cover all children aged nine months and up.
This will be introduced to households in England where both parents work in the following phases:
- April 2024: Eligible two-year-olds will get 15 hours of free childcare per week
- September 2024: Qualifying children aged between nine months and two years will get 15 hours
- September 2025: Eligible children aged between nine months and three years will get 30 hours.
In addition to this:
- The 700,000 parents on Universal Credit will get childcare support upfront instead of having to claim it back
- The current £646-a-month per child cap which people on universal credit can claim for childcare will rise to £951 for one child and £1,630 for two
- Incentive payments of £600 will be piloted from this autumn for those who sign up to be a childminder, rising to £1,200 for those who join through an agency
- Schools and local authorities will be funded to increase the supply of wraparound care so that parents of school-age children can drop their children off between 8am and 6pm
- The funding paid to nurseries for the existing free hours offered will also be increased by £204million from this September rising to £288million next year.
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