A £4bn expansion of free childcare for one- and two-year-olds in England is expected to be announced in the budget on Wednesday as part of a wider drive to help people into work and boost growth.
The plan would provide an extra 30 hours a week to parents of one- and two-year olds, and increase funding by £288m by 2024-25 for the existing programme of free childcare for three year-olds.
The chancellor, Jeremy Hunt, is planning to increase the hourly rate paid to childcare providers by the government to deliver their existing 30 hours weekly entitlement, a key demand from the sector and some Conservative MPs.
The government will give local authorities funding to start setting up wraparound childcare provision in schools, starting in September 2024, as it tries to match Labour’s pledge to come up with a bold offer on childcare ahead of the next election.
The Guardian revealed last month that the Treasury had commissioned work to look at the costings of free childcare for one- and two-year-olds but Hunt had feared it would prove too expensive. However, it is understood the proposal came back on the table following forecasts that suggested it could help boost growth.
Childcare has emerged as a key political battleground in the run-up to the next election, with UK parents facing among the highest costs in the world, meaning that some parents, even those on middle incomes, conclude it is not worth taking on new or extra work.
Officials suggested the measure could be Hunt’s “rabbit from the hat” moment in a statement that was otherwise expected to yield few surprises, with the chancellor downplaying expectations of tax cuts or other big spending commitments.
Rishi Sunak was understood to be taking a final decision on signing off the plan, which government insiders believe would help him deliver on his pledge to increase sluggish growth, on his return from the US on Tuesday.
While the markets have calmed since Liz Truss’s disastrous mini-budget last September and the economic outlook is less turbulent, millions of people are still grappling with the cost of living, while inflation is at a 40-year high and the country is gripped by strikes.
Conservative MPs who have called for tax cuts are likely to be disappointed as the chancellor focuses on delivering Sunak’s pledge to boost growth by encouraging the over-50s, people with disabilities and chronic conditions, and benefits claimants back into the workplace.
The chancellor is also expected to extend household energy bill support by three months, increase corporation tax from 19% to 25% in April, freeze fuel duty and announce a £5bn boost for defence spending.
The government is also expected to bring in changes to the staff-to-child ratios for two-year-olds in childcare, moving from 1:4 to 1:5 to align with Scotland, and will consult on further measures to give providers flexibility. The plan was first mooted by Liz Truss but was reported to have been scrapped by Sunak, as it would prove expensive and unpopular.
One Treasury source suggested that the Department for Education could decide how to split the new funding better between the existing offer for three-year-olds and new provision for younger age groups.
A second senior Whitehall source said they believed that Hunt could set out a new free hours entitlement for parents of children aged between nine and 36 months and an additional offer for one-year-olds from disadvantaged families.
They also said that the DfE had been pushing for the hours to be funded “at cost” rather than the current low rate, which has led to childcare providers struggling and in many cases asking for top-up payments from parents.
Many experts have been warning that government subsidies are not sufficient to fund the places needed, leading to large supply gaps in parts of the country. In Hammersmith and Fulham in London, for example, a recent study by Nesta showed that a place for a two-year-old cost £10 an hour. The government subsidy rate for that place is £6.66.
“It is all about getting money to the providers at this point,” said one Tory MP. “Unless they are properly funded for what they do, there is no point just offering more and more hours.”
The chancellor said on Sunday that childcare costs were stopping some parents from taking a job and the government could make a “big difference” by helping to reduce them further, as part of a package of measures to break down barriers to entering the workforce.
Ministers have already announced plans, to be confirmed in the budget, to pay childcare support to parents on universal credit up front, instead in arrears. The current £646-a-month per child cap on support is also expected to increase by several hundred pounds.
However, the chancellor had downplayed the prospect of expanding free childcare provision now. “We would like to help everyone. It’s expensive to do it. You can’t always do everything at once,” he said.
All three and four-year-olds are currently entitled to a free part-time nursery education place for 15 hours a week, 38 weeks a year, regardless of how much their families earn. They qualify for 30 hours of free childcare if both parents earn the equivalent of at least 16 hours a week at the national living wage which means the vast majority of working families qualify although the very richest are not eligible.
Additional reporting by Jessica Elgot and Kiran Stacey