Parents set for a windfall as child benefit and childcare changes come in

From the minute your child is born, there’s no doubt that life gets more complicated and expensive. Questions arise like how will you split paternity leave, will you both go back to work full time, and is that even a possibility with childcare in the UK being so expensive?

With the average cost of full-time nursery for a child under two coming in at an eyewatering £14,800 a year, according to the 2023 Coram Childcare report, it’s not hard to figure out why so many parents decide not to return to the workplace, or return part time – at least initially.

Rising nursery costs

Things might be changing but the burden of childcare still falls primarily on women, and research carried out last autumn for one of our campaigns revealed that only 55% of women who were previously working full-time returned to work full-time after having their first child. That number falls to just 30% when a second child is added to the mix.

Little wonder the government has been so pre-occupied with finding the cash to fund “free” childcare over the past couple of years, with the deadline to apply for two-year-old funding fast approaching. (The deadline to apply for 15 free hours for two-year-olds starting in April 2024 is 31 March 2024 – funding for nine-month-olds is due to commence in September 2024.)

Looking at the latest data from the ONS, almost 25% of those women currently considered ‘economically inactive’ stated the reason for not being in work or looking for a job was because they were ‘looking after their family/home’. That’s 1.3 million women potentially available to fill those 908,000 job vacancies currently adding to the UK productivity puzzle, though some will be playing taxi for older children who no longer qualify and some will have other caring responsibilities that prevent them from entering the labour force.

Free hours are not free

The Government’s solution of ‘free’ hours does have limitations and conditions. First, you only get the 15 hours during term time which means that for 14 weeks out of every year, there’s a shortfall to make up. You also need to apply for the hours and if you miss the window for the next term, you will have to wait several months to qualify.

Second, nurseries have been crystal clear that the funding doesn’t cover all their costs, so parents are likely to find that they have additional costs to pay for things like meals, nappies and sun cream (though remember that you can make your money stretch further by using a tax-free childcare account).

And third, you need to make sure you are eligible, as parents need to work at least 16 hours a week at minimum wage to qualify, but also earn less than the £100,000 a year cutoff for support.

It’s complicated, and there are concerns that many people will struggle to find nursery places. With the full 30 hours not due to come in until September 2025, there will be some families who find that even this enhanced provision isn’t enough to make the sums add up.

Child benefit boost coming

If you’re feeling a bit hard done by because your kids are now too old to qualify for those free childcare hours, keep reading, because there were other measures delivered in the recent budget that could provide a decent boost for your family.

The biggest change in the most recent Budget that could make a huge difference to your family finances was with child benefit, and crucially the increase in the previous £50,000 earnings limit at which you can no longer claim benefit in full to £60,000. On top of this, fewer parents will be caught out as the point you are no longer eligible for any child benefit rises from £60,000 to £80,000. It means that from 1 April, many middle-income families will be able to claim child benefit in full where they currently aren’t eligible at all.

The biggest winners of April’s changes will be households where each parent earns £60,000 because they’ll go from not being eligible for any child benefit to being able to claim the whole shebang; money they’ve either not been claiming or have been having to pay back.

The eventual plan is also to allocate child benefit by household to reduce the previous unfairness of the system for a single-income family. Currently, two working parents can each earn £49,000 and get the full child benefit but a parent in a single-earner household on £60,000 would get nothing – despite the household income being lower.

It’s important to note that with child benefit, it won’t just automatically come your way if you’re not currently claiming it and it will require you to fill out some forms - something which has put many parents off claiming in the past even if they might have been entitled to at least a portion of it.

How to turn a child benefit windfall into a £50,000 nest egg

From April, child benefit will be paid at £25.60 a week for the eldest child and £16.95 a week for subsequent children.

Cost of living pressures could easily see that extra cash subsumed into the household budget, but if you can make do without it, that £25.60 a week could mushroom into a nearly £50,000 nest egg after 18 years. This would give your child an incredible start to their adult lives, covering a deposit on a first house or helping with university tuition fees.

Assuming the benefit rises 3% a year and you get investment returns of 5%, if you have two children investing, the child benefit could amount to £81,799 after 18 years, which you might want to split neatly into two just to be fair. For three children, the pot would be worth £114,000 after 18 years.