- Parents can now apply for 30 ‘free hours’ of childcare funding for children aged 9 months
- Currently only 15 hours is available to parents of children aged 9 months to 3 years old
- New free hours worth an average of more than £6,500 to parents of 2 year olds
- September expansion to the ‘free hours’ scheme is the final phase of childcare funding overhaul first announced in 2023 under the Conservatives
- If you invested the money you could generate £56,000 by your child’s 18th birthday*
Laura Suter, director of personal finance at AJ Bell, comments:
“Parents will be able to access the final tranche of government-funded free childcare hours from September, providing a helpful boost to their finances. The extension means that parents of children as young as nine months old will be able to claim 30 hours of free childcare at a nursery or childminder. They can now apply for this, with applications recently opening to allow parents to obtain a code from the government and receive the funding. But it’s tricky for parents to work out exactly how much they will save by using the government handout.
“On average, parents of under 2s will benefit from an extra £6,579 each year as a result of getting an extra 15 free hours of childcare from September. This means the full 30 free hours could be worth around £13,158 a year (see table). However, working out exactly how much you’ll benefit from the scheme isn’t as simple as assuming your first 30 hours of childcare are completely free of charge, despite the name of the scheme.
“Government calculates the average cost of childcare in each area, and then provides a payment to nurseries and other registered childcare providers based on the number of children they care for. But each nursery may still charge parents for additional costs for things like meals, meaning that the subsidy may or may not actually cover the equivalent of a full 30 hours.
“Childcare costs vary hugely around the country, so the amount the scheme is worth to parents will vary from one region to the next. Inner London is the most expensive area for childcare, with the free hours scheme paying out an average of £15.81 per hour for under 2s, while in the East Midlands the government calculates the hourly funding rate at an average of £10.80 an hour.
“The other caveat is that often parents can be charged some additional fees when claiming the free hours. While childcare providers aren’t allowed to charge explicit top-up fees, many will levy activity fees, meal charges or nappy costs to help make up the shortfall between what they would usually charge per hour and what the government pays them. This means the savings might not be quite as high as some parents are expecting.
“The government-funded scheme also only applies to term time hours, equivalent to 38 weeks of the year.
“Parents left scratching their heads wondering how much they need to budget for childcare should be able to get a breakdown of different rates from their child’s nursery, explaining how much they’ll need to pay once the subsidy has been factored into the overall cost. It’s important to study this closely and check the small print to avoid over-estimating how much you’ll save through the scheme.”
How much will parents save?
Source: AJ Bell. Assumes parents claim and are eligible for the full 30 hours. Based on the national average local authority funding rates for 2025/26. Rate for 3-4 year olds is the combined average of additional and universal hours. Local authorities are required to pass on at least 96% of childcare funding to providers, but may allocate more. Funding passed to childcare providers may or may not equate to 30 full hours for a specific provider. *Parents earnings over £100,000 entitled to 15 free hours only.
How much you could make by investing the money
“For some parents the free childcare hours will be a lifeline in helping their stretched household budgets, and for others it will mean they can return to work, as childcare costs won’t be such a large barrier to re-entering employment. However, some households will have budgeted for starting a family before this scheme was introduced and may now be in a significantly better financial position than they expected.
“If parents invested the saving they make as a result of the free hours they could generate a healthy pot of money for their child by their 18th birthday. Assuming they benefit from the maximum 30 hours funding at the national average rate for three years before their child goes to school, they could generate a pot worth over £56,000 by their 18th birthday – assuming investment growth of 4% a year*.
*Assumes a £13,157.68 investment in the first year, £9,725.81 in the second and £6,977.39 in the third, in line with the national average funding rate for 30 hours for under 2s, age 2-3 and age 3-4 respectively. Invested until age 18 with growth after fees of 4% per year.
Scheme expanded since 2023
The government announced in March 2023 that it planned to expand the pre-existing ‘free hours’ scheme, which applied to children age 3-4. From March 2024 working parents of 2 year olds were also able to claim 15 hours of funding support. From September 2024 working parents of children age from 9 months were able to claim 15 hours.
From September 2025 working parents of pre-school children aged from 9 months will be able to claim the full 30 hours childcare funding, the final stage of the phased implementation, with government projecting an additional £4.2 billion spend this year and £5.2 billion next year, when compared to the previous scheme limited to children age 3-4.
How the free childcare hours work
To be eligible both parents have to be working and earning at least £195 a week each, equivalent to around £10,000 a year or 16 hours a week at minimum wage. There are lower earnings criteria for parents under age 21.
However, for parents of two-year-olds and younger they lose all their free hours entitlement when either of them earn more than £100,000 (minus any pension contributions). For parents of three and four-year-olds the free hours entitlement drops from 30 hours a week to 15 hours a week once either parent earns more than £100,000.
You have to actively claim the free hours, through the government gateway, rather than the hours being automatically awarded. You can also only claim from the start of the term after your child reaches the eligible age. So, for example, if they turn nine months old at the start of October you won’t be able to claim until January. If you haven’t applied by the start of the term you won’t get the free hours until the start of the following term. For example, anyone who misses the cut-off to claim for September will only be able to get the free hours from January.
