Two million families will be offered up to £2,000 a year of state help per child towards the costs of care, David Cameron and Nick Clegg will announce on Tuesday.

The support package – one of the coalition’s central election offers to middle-class working parents – will be available, when launched, for anyone with children up to the age of 12 instead of the previous cut-off age of five.

The £2,000 maximum is to cover 20% of the costs of childcare up to an annual maximum of £10,000 a year. No extra support is available for people with more expensive provision.

The package, originally unveiled a year ago, was to have been worth a maximum of £1,200 per child. It would be introduced in a single year in autumn 2015, rather than being phased over seven years. An extra £50m has also been found to provide extra help for children aged three or four from the poorest families.

Cameron said that “tax-free childcare will help millions of hard-pressed families” while Clegg highlighted “the £50m cash injection for early education providers to support those children who need extra help in their early years”.

However, Labour described the package as “too little, too late”.

Full-time childcare costs for a family with a two-year-old and a five-year-old are estimated at £11,700 a year by the Family and Childcare Trust.

The overall cost remains at £750m a year because the Treasury has revised its estimate of the number of families likely to be eligible for the scheme down from 2.5 million to 1.9 million. Ministers have also responded to complaints that the package would punish poorer parents in receipt of universal credit not paying income tax by agreeing they will receive help with 85% of child care costs, rather than the previous plan of 80%, a move that could save low-income families as much as £1,500 a year.

The scheme will be available to families working part-time because of the low minimum earning threshold of £50 a week, but is also on offer right up the income scale to parents jointly earning up to £300,000 a year.

The childcare subsidy comes as concern mounts among the Liberal Democrats about the cost and diminishing help offered to Britain’s poorest workers by the budget’s other flagship announcement – raising the personal tax allowance to £10,500 from April 2015.

Research by the Resolution Foundation released on Monday shows that three-quarters of the cash gains from lifting the allowance will go to the top half of the income distribution. The findings also suggest that the increase will only take an additional 200,000 people out of tax, but at a total annual cost to the Treasury of £1.4bn.

George Osborne’s plan to raise the personal tax allowance in Wednesday’s budget from £10,200 to £10,500 a year mean anyone earning less than £10,500 would pay no income tax, but would continue to pay national insurance contributions.

The average annual benefit to those taken out of tax would be £26, whereas the average annual gain for the vast majority who continue to pay tax would be £56. The Resolution Foundation points out that “only a tiny element of the cost of the policy is spent on lifting people out of income tax altogether”.

There have been growing calls inside the Liberal Democrat ranks to look at other options for helping the poor such as raising national insurance thresholds. The business secretary, Vince Cable, is known to have raised concerns about the diminishing returns of the policy for the low paid.

The leading thinktank Centre Forum has also urged the party to look at other ways of helping the low paid, such as raising national insurance. But the Lib Dem leadership believes it would be politically suicidal to distance itself in any way from raising the personal tax threshold, especially since it is fighting the chancellor George Osborne to claim undisputed ownership for the single most important tax reform of the parliament.

If you need to speak to a specialist Adviser on how you might be affected,  please contact us on 0208 679 4690 or need more information about Tax Free Childcare, please Visit our website. 

Categories: Child Care

Tags: Childcare