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Chancellor Philip Hammond has announced in his Spring Budget speech that two million households will be eligible for Tax-Free Childcare by the end of the year, saving families up to £2,000 annually.
It was also confirmed that working parents with three- and four-year-old children will see their free childcare entitlement doubled to 30-hours a week from September, a move claimed to be worth up to £5,000 a child.
The plans were described by the Chancellor as "support for ordinary working families and woman in the workplace."
From 2017, the existing Childcare Vouchers scheme will be closed to new joiners. The new Tax-Free Childcare will see eligible families get 20 per cent of annual childcare costs paid for by the Government.
The scheme could see a £2,000 saving per child under 12-years-old each year, or up to £4,000 in savings for the families of disabled children up to the age of 17.
To qualify, parents will have to work 16 or more hours a week, and each earn at least £115 a week. It will not apply to those who earn more than £100,000 each per year.
Jonathan Watts-Lay, director of WEALTH at work, a leading provider of financial education in the workplace, said: "Changes to the Child Care Voucher System will be rolled out from early 2017. Parents who are already members of the current Child Care Voucher system can continue in it, providing their employer will still provide access to it; new members will also have the opportunity to join the current scheme up until April 2018.
"The new system, called 'Tax-Free Childcare', will be available online and the Government will contribute 20p for every 80p that parents spend on childcare.
"Whether parents are better off with the old or new scheme depends on factors including how much they earn, how much they spend on qualifying childcare, whether both parents work, how old their children are, and how many children they have."
'Lost opportunity to mention early years funding'
Along with Courteney Donaldson, head of childcare and education at Christie & Co, who said that the Spring Budget was a 'lost opportunity' for the Chancellor to reward and demonstrate his appreciation for the childcare sector, the Pre-school Learning Alliance expressed 'disappointment' that his brief reference failed to mention early years funding.
Neil Leitch, chief executive of the Pre-school Learning Alliance, said: "With just six months to go until the roll-out of the 30-hour so-called 'free childcare' offer, the Government simply cannot continue to ignore the very valid concerns about the viability of the scheme that have been raised."
He added: "The fact that after months of telling the sector that there simply is no more money available, the Government has managed to find £320m for new free schools and grammars only adds insult to injury.
"The extended entitlement offer was a key Conservative manifesto pledge to families, and yet, with more and more childcare providers looking to limit the funded places they will offer – or in some cases, pull out of the scheme altogether – it’s looking increasingly likely that many parents expecting to benefit in September will be left disappointed."
'Nurseries are affected by rates revaluation'
Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), also voiced concern that the Chancellor chose to 'ignore' the plight of nurseries in his speech.
"Nursery businesses are particularly badly affected by the rates revaluation because they tend to be in larger properties with plenty of outdoor space for children to play. So, their business rates tend to be proportionally higher compared to the size of their businesses, with the average rateable value in the UK being about £20,000. Most won’t benefit from his £50 increase cap for businesses coming out of the relief threshold.
"Nurseries, many of which are small businesses, also desperately need help due to years of Government underfunding for free places for three- and four-year-olds. The new funding rates being set by local authorities don’t go anywhere near to covering their costs and are fixed until 2020, despite wages and other costs rising," she said.
Research recently conducted by the NDNA shows that only half of nurseries expect to make a profit or surplus, with 46 per cent surveyed just breaking even or sustaining losses.
"When faced with heavy bills and years of Government underfunding, nurseries will regrettably have no choice but to push up fees for parents," she added.
Business rate relief
Cheryl Hadland, founder of Tops Day Nurseries, recently lead a deputation to Bournemouth Borough Council to call on the authority to provide business rate relief for all day nurseries and preschools in the area.
"It is disappointing that the Chancellor has prioritised business rate relief on pubs, rather than nurseries that educate and grow the life chances of young children," she commented.
"The future financial sustainability of our nurseries in Bournemouth, as well as many other nurseries in the town, is at risk due to a number of financial pressures.
"Nursery closures will have a major impact on the ability of local parents to work and, most importantly, will mean that many young children miss out on an early education that gives them the best possible start in life," she added.
Ms Hadland explained to the council that business rates in two of her Tops Day Nursery sites in Bournemouth will rise to £23,712, which is a net increase of 11.2 per cent.
"Taken alone this increase would have a detrimental impact on private nurseries but the situation is made more difficult by the financial impact of the Government’s promise to parents to give three- and four-year-olds 30-hours free childcare that will be rolled out this year."
Many private nurseries, including Tops Day Nurseries, have raised concerns that the Government funding they will receive will not meet the cost of delivery.
According to Ms Hadland, "it costs us £5.08 per child per hour to deliver high-quality childcare and education, but the Government will pay private nurseries in Bournemouth only £4.30 to deliver this.
"This means that we, along with many other local nurseries, will make a loss on any places provided as part of the 30-hours free childcare policy."