Three ways to manage the cost of childcare

Sarah Coles
Updated

It’s the 60th anniversary of Mary Poppins hitting the big screen, the childhood favourite film tells the story of a magical nanny who appears to a trouble family and changes their lives. Some 60 years later there are millions of parents wrestling with unaffordable childcare costs and living in hope that a solution will drop from the sky — with or without a magic umbrella.

The cost of childcare in the UK is eye-watering. Just 25-hours a week for a child under the age of two costs an average of £157.68 — or £7,569 per year.

Fortunately, in the absence of a flying nanny, there are things we can do to keep a lid on the extortionate costs.

One thing that’s set to make a massive difference to parents is the expansion of free childcare. It kicked in from April, when working parents of two-year olds became eligible for 15 free hours a week during term time (working parents with pre-school children aged three and over were already entitled to 30 hours).

Next month, this will be widened to include children aged from nine months to two years, and you can apply for this now. The 15-hour entitlement will then increase to 30 hours from September 2025.

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There are a few caveats though. The annual Coram childcare survey, carried out before the change in April, showed that fewer than half of parents found providers available for the free hours for two-year-olds.

Meanwhile, if you need cover beyond the school year, the free entitlement works out at 11 hours a week. Nurseries may set boundaries on how you can use those hours, and may charge extra for "consumables". You also need to earn at least £183 a week to qualify, and less than £100,000 a year.

If you’re paying for additional help, this doesn’t come cheap. The survey found that those who top up the free 30 hours to 50 will pay £120.93 a week in England. If you’re covering this expense, or have older children under the age of 12 who need wrap-around care, you can get another chunk of help from tax-free childcare.

To take advantage, you have to put money into a specific account, and for every £8 you pay in, the government will add another £2. The system lets you claim up to £500 every three months — up to a total of £2,000 a year for each child. To qualify, you need to be working and earning at least the equivalent of minimum wage for 16 hours a week (£183) and both parents need to earn less than £100,000 a year.

Finally, if you receive working age benefits, you could get additional help, including the childcare parts of tax credits and universal credit. You might be able to claim 85% of costs if you’re eligible for universal credit.

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Bear in mind, however, that if you receive these benefits, you can’t use the tax-free childcare scheme.

This support will take some of the pain out of the cost, but many families will continue to need the help of grandparents to make work pay. The good news is that they might get more than just your gratitude in return. If they’re under state pension age and looking after a child under 12, they may be able to boost their state pension at the same time.

When a parent is receiving child benefit for a child under 12, they automatically get national insurance credits towards their state pension. If they’ve gone back to work and are paying NI, they won’t need it, so they can sign a form to give it to a grandparent instead.

These are known as specified adult childcare credits. To get the full new state pension you need 35 years of national insurance payments or credits — so if a grandparent hasn’t yet hit this threshold, it’ll boost their state pension.

Of course, none of this is quite as handy as a fully-fledged solution just dropping from the sky. But if you take advantage of everything on offer, it should help add at least a spoonful of sugar to the unpalatable cost of childcare.

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