Financial review of early learning and childcare in Scotland: the current landscape

Information on the early learning and childcare system in Scotland, with a focus on provision of the funded entitlement.

Annex C: UK childcare policies

Working Tax Credit ( WTC)

  • Public funding for ELC (in Scotland) is made available by UK Government to families through the childcare costs element of WTC.
  • Support is offered on up to 70 per cent of childcare costs up to a maximum spend of £175 per week for one child and £300 for two or more children. In practice this support is tightly targeted. As at April 2015, there were 34,800 families benefiting in Scotland.
  • With the introduction of Universal Credit ( UC), which will replace WTC, support is extended to cover 85 per cent of childcare costs up to a monthly cap of £646 for one child and £1,108 for two or more children. Support will be available to all working families on UC, regardless of how many hours they work or whether they pay income tax. Around an estimated 40,000 families in Scotland could benefit from this scheme.

Employer-supported childcare and tax free childcare

  • Employers who offer childcare vouchers, directly contracted childcare or workplace nurseries to their employees can save through exemption from National Insurance Contributions ( NIC) on the value of the childcare offer purchased by employees.
  • Employees taking up employer-supported childcare are exempt from Income Tax and NIC on the amount spent on childcare from their gross pay.
  • However, it is estimated that over half of all working families in the UK are unable to access employer supported childcare as only a minority of employers participate in this programme. This implies around 43,000 working families in Scotland benefit.
  • In 2017, the UK Government will introduce tax-free childcare. This scheme will replace existing employer vouchers and will contribute 20 per cent toward the costs of approved registered childcare up to a maximum spend of £10,000 per annum to all families where both parents need to earn at least £115/week but less than £100,000/year.

Early learning and childcare provision in the rest of the UK

  • The UK Government offers 570 hours of ELC to all 3 and 4 year olds and to 40 per cent of 2 year olds, usually taken as 15 hours per week over 38 weeks in England. By September 2017, the funded provision is planned to be expanded to 1140 hours for parents working more than 16 hours per week and earning less than £100,000 (the roll-out is scheduled to start in September 2016). The UK Government revised their cost estimate for the expansion several times, from £350 million in April 2015 to "over £1bn" in November 2015 although independent analysis suggests this is likely to be an underestimate of the true costs.
  • The UK Government uses the same set of criteria as Scotland to determine eligibility for 2 year olds. However, if parents want to claim the entitlement as recipients of WTC and Child Tax Credits, their income has to be under a certain thresholds. This threshold is higher in England, resulting in greater eligibility rates of around 40 per cent (instead of around 27 per cent in Scotland).


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