The UK has a £2,000 tax break that keeps people working – and hardly anyone knows about it

A new report shows that Tax-Free Childcare has a significant impact on working parents in the UK, and could be key to unlocking a productivity boost.

Tax-Free Childcare (TFC) is a UK government scheme designed to help working families pay for approved childcare, providing up to £2,000 per child, per year (or up to £4,000 for disabled children).

The report, commissioned by HMRC, looked at the impact of TFC on the labour market participation of working parents. It found that one-third (37%) of TFC users said it helped them or their partner afford to work at all, while 54% of users reported TFC impacted their household’s work hours in some way.

Shift workers were more likely to say TFC helped them maintain or increase hours (49% vs 46% average), and 41% said they couldn’t work the same hours without it. Self-employed parents were also significantly more likely to say TFC helped them increase hours (34% vs 25% average).

Despite its effectiveness, the research found awareness remains the biggest obstacle to take-up. Among non-users, 18% said they didn’t know enough about the scheme, 10% didn’t know it existed at all, and another 10% didn’t believe they were eligible.

Key to unlocking productivity

Childcare support and provision are important to solving the UK’s productivity puzzle, as significant as transport, skills and immigration policy, said Shazia Ejaz, Recruitment and Employment Confederation (REC) Director of Campaigns.

“Its role in supporting labour market participation cannot be underestimated at a time when so many employers are struggling to recruit people with the right skills and availability. This new government research shows that better childcare support enables people to work and to work longer.”

The finding that one in four respondents said at least one parent would work fewer hours if Tax-Free Childcare were withdrawn should chill any thoughts of ending it, she said.

“The same research also shows that lack of awareness remains the main barrier to take-up, suggesting the policy is underused rather than flawed. Tax-Free Childcare should remain in place, alongside reforms to childcare funding and access that support working families and providers alike.”

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