Spring Budget announces expansion of free childcare and Universal Credit childcare cap increase

Jeremy Hunt announced in his Spring Budget speech on 15 March 2023 that 30 hours of free government-funded childcare a week will be extended to working parents of children aged as young as nine months in England¹. The existing offer gives parents up to 30 hours of free childcare for three and four-year-olds for 38 weeks a year¹.

The expansion will be introduced in stages. From April 2024, working parents of two-year-olds will get 15 hours of free childcare per week. From September 2024, working parents of children aged nine months to two years will get 15 hours per week. From September 2025, all eligible working parents of children aged nine months to three years will be able to access 30 free hours per week¹.

The help will only be offered to households where all adults are working at least 16 hours¹. The Chancellor said the package was worth an average £6,500 saving for a family with a two-year-old child using 35 hours of childcare a week¹.

The childcare element of Universal Credit currently covers 85% of childcare costs, up to a maximum of £646.35 per month for one child, or £1,108.04 for two or more children¹. Under the plans, the amount parents on Universal Credit can claim back on childcare will rise to £951 per month for one child and £1,630 for two or more children¹. Families on low incomes will also be offered upfront payments rather than asked to make a claim for reimbursement¹. The government has said the changes would come into effect this summer, but did not confirm which month¹.

To qualify for the childcare element of Universal Credit, both members of a couple must be in work, unless one has limited capability for work, regular and substantial caring responsibilities for a severely disabled person, or is absent in prison, hospital or residential care¹.

Other measures announced included trialling incentive payments of £600 for childminders joining the profession, or £1,200 if they join through an agency; £289m to boost wraparound childcare in England so all children can access 8am to 6pm provision in their local area; the minimum staff to child ratio changing from 1:4 to 1:5 for two-year-olds in England from September 2023, which will remain optional; and £204m funding to nurseries from September 2023, rising to £288m in 2024-25, to help deliver the free hours offer in England¹.

Why it matters for households

The free hours expansion applies in England only, and the rollout does not start until April 2024¹. Parents of children below the current age threshold will not see any change to their entitlement before then. Eligibility is tied to work: households where not all adults work at least 16 hours are excluded¹.

For families on Universal Credit, the higher caps and upfront payments change how childcare costs are met. The current caps of £646.35 for one child and £1,108.04 for two or more rise to £951 and £1,630 respectively, and payments will be made upfront rather than reimbursed after a claim¹. The government said these changes would take effect this summer but did not confirm the month¹. The 85% coverage rate is unchanged in the announcement¹.

The ratio change for two-year-olds, from 1:4 to 1:5, takes effect in September 2023 and remains optional for providers¹.

What happens next

The Universal Credit childcare changes are due this summer, with no month confirmed¹. The first phase of free hours begins in April 2024, followed by September 2024 and September 2025¹. The £204m nursery funding starts in September 2023, rising to £288m in 2024-25¹.