Wealthy parents to gain most from childcare changes announced in the Budget

Government’s own watchdog says low-income families in need of support will lose out

Families earning up to £300,000 a year will receive childcare support under the proposals, but it is low- and middle‑income parents who find the costs of childcare the biggest obstacle to taking on more work

The Government’s watchdog on child poverty has warned that the more generous state support for childcare costs announced in the Budget will help the rich at the expense of the poor.

Alan Milburn, chairman of the Social Mobility and Child Poverty Commission, said low-income families will lose out despite George Osborne’s decision to increase the Government’s share of their childcare bills, because a couple with a joint income of £300,000 a year will benefit.

The £750m-a-year “tax-free childcare” scheme will provide up to £2,000 per child each year, by meeting 20 per cent of childcare costs up to a maximum of £10,000 annually. It will start in 2015, and within a year will cover all children under 12 when both parents work.

The Government will meet 85 per cent of childcare bills for people on universal credit.

Mr Milburn told The Independent on Sunday: “The Government has taken half a step forward. The announcement that 85 per cent of childcare costs will be met under universal credit from 2016 will help work pay for low-income families. This is very welcome. The sting in tail is that this £200m expansion in childcare support will come from within the universal credit programme. That risks robbing Peter to pay Paul.”

Mr Milburn, a former Labour cabinet minister, said: “It would have been much fairer to pay for it by reducing support to better-off families. Under these proposals, the taxpayer will continue to offer childcare support to families earning up to £300,000 a year.”

Gavin Kelly, chief executive of the Resolution Foundation, welcomed a move that could give some families an extra £1,000 a year of childcare support. But he said: “This policy change is still pretty small beer compared to the far larger sum that is going to be spent extending support via tax-free childcare. About 80 per cent of the gains from this will flow upwards to those in the top half of the income distribution. It’s also the case that it’s low- and middle-income parents who find the costs of childcare the biggest obstacle to taking on more work – so targeting support at them would make sense.”

A survey by the Resolution Foundation carried out with Mumsnet found that a majority of parents want to limit childcare support to families on incomes lower than those proposed under the Government’s package. More than half (57 per cent) thought the cut-off should be £75,000 a year or lower, while a quarter thought it should be set at £50,000.