Research and analysis

Impact of Tax-Free Childcare on the labour market participation of working parents

Published 29 January 2026

Prepared by Ipsos for HM Revenue and Customs

Research report number: 843

March 2025

The views in this report are the author’s own and do not necessarily reflect those of HM Revenue and Customs

1. Overview of research

HMRC commissioned Ipsos to conduct research into the impact of the Tax-Free Childcare (TFC) offer on the labour market participation of working parents. The project was funded by the UK Government’s Labour Markets Evaluation and Pilots Fund (2024 to 2025) which included the research outlined below and analysis carried out on internal data. 

A mixed-method research approach was carried out with parents eligible for TFC, which included 3,636 quantitative surveys and 60 depth interviews. The survey was open between 25 July and 3 October 2024 and depth interviews were conducted between 14 October and 22 November 2024.  

Table 1.1 and 1.2 below show the unweighted bases of completed surveys and depth interviews by audience type. 

Table 1.1. Number of completed surveys and interviews by TFC user status.

TFC user status	Number of completed surveys	Number of completed interviews
TFC users	3,049	47
Non-TFC users	587	13

Table 1.2. Number of completed surveys and interviews by audience type

Audience type	Number of completed surveys	Number of completed interviews
TFC only users	2,109	32
TFC and Free Childcare for Working Parents (FCWP) users	940	15
Parents only using FCWP	149	4
Uses neither TFC nor FCWP	438	9

The research objectives were to understand: 

1. The main factors in parents’ decisions about how many hours to work in a week. 

2. Whether TFC users had any typical features such as the industry they worked in, their income, educational background and working patterns, and how these compare with parents not using TFC. 

3. The retention impact of TFC on the working patterns of parents. 

4. The role TFC has in supporting sub-groups of interest, including: parents in Northern Ireland; parents of disabled children; parents of children aged 5 or above; shift workers; single parents; and self-employed parents. 

5. How TFC interacts with the 30 hours FCWP of three to four-year-olds offer and the possible impact of the expansion of this offer to nine-month-olds in September 2024. 

Northern Ireland was included as a sub-group of interest due to TFC being the only offer available to parents in Northern Ireland at the time of research compared to other nations in the UK which had complementary offers. We therefore wanted to explore whether TFC had a uniquely important role for parents in Northern Ireland.  

All percentage figures reported in this summary are based on weighted data. Weighting is a statistical technique that adjusts survey data to take into account profile differences between a sample and the population being surveyed. It increases the impact of certain respondents’ answers on the final results and decreases the impact of other respondents’ answers depending on their profile characteristics. This makes the final survey data match as closely as possible the TFC user and non-TFC user populations, which increases the reliability of conclusions drawn from the data. More information on the weighting process can be found in the technical note associated with this research.

2. Summary of findings

The quantitative survey investigated research questions 2 to 5. The qualitative strand of the research investigated all the research questions, adding depth to survey findings.

All subgroup differences reported in this summary are significant at the 95% confidence level and have a base of over 30 respondents. Where ‘household’ findings are reported it has been self-reported by the survey respondent. HMRC does not have access to household level data.

2.1 Impact of TFC on parent’s work hours

The survey found that over a third (37%) of TFC users reported that TFC helped them, or their partner if they had one, to afford to work at all.  

In total, 54% of TFC users said that TFC impacted their household’s work hours in some way. This included helping at least one parent:

• maintain their work hours (24%)

• increase their work hours (25%)

• decrease their work hours (10%)

These figures add up to more than 54% because in households with two parents, TFC could have impacted the work hours of each parent differently.

2.1.1 Increase in work hours

Of the quarter of respondents who said TFC helped them increase hours:

• the majority (41%) said it helped them work 6 to 10 hours more per week

• just under a third (30%) said TFC helped them work one to five hours more per week

• just over a quarter (27%) said it helped them work over 10 hours more per week

2.1.2 Maintenance of hours

Nearly three quarters (72%) of parents who said TFC helped maintain work hours also agreed that they or their partner would work fewer hours if they could not use TFC. This suggests that most parents understood ‘TFC helps maintain work hours’ to mean they otherwise could not keep their current work hours.

2.1.3 Decrease in work hours

The one in ten (10%) households who said that TFC helped decrease work hours can be explained by households where one parent decreased their hours, and the other increased or maintained their hours. As a result, the total hours worked within a household may still have increased or been maintained due to TFC. There were households where TFC helped both parents decrease their work hours or where it helped single parents decrease their work hours, but these were a minority within our sample.

2.1.4 No impact on work hours

In total, 46% reported TFC had no impact on one or both parents’ work hours, and 34% of two-parent households reported both parents’ work hours were unaffected by TFC. Certain parents were more likely to say TFC had no impact on their work hours than the average TFC user. These were: 

• parents of only school-aged-children (50% compared to 43% with only pre-school-aged children and compared to 46% average)   

• parents whose monthly childcare cost was less than £250 (50% compared to 45% who spent £250 or more and compared to 46% average) 

• couples where neither parent was a shift worker (49% compared to 40% where both parents are shift workers and compared to 46% average)

2.2 Factors that contributed to parents’ decisions about work hours

The qualitative research found that TFC was one contributing factor to parents’ work decisions alongside childcare choices, work arrangements and overall household finances. The extent to which TFC impacted work hours varied based on personal, work and financial circumstances.

2.3 The impact of the Tax-Free Childcare offer on the work hours of specific subgroups

2.3.1 Shift workers

For the purposes of this research, ‘shift worker’ was defined as someone who worked outside the hours of 8am to 6pm and/or worked on the weekends. 

Shift workers were more likely to say that TFC helped them maintain or increase work hours than average (49% compared to 46%). 

In addition, shift workers were significantly more likely than the average TFC user to say that without TFC, they would not be able to work the same hours (41% compared to 35% on average), suggesting they relied on it more to be able to maintain their work hours. These parents were also more likely than average to say that TFC helped them work more regular hours (20% compared to 18% average). 

The qualitative research supported this as it found that TFC made formal childcare more affordable for shift workers. There were shift workers who reported that without TFC, they would reduce the number of shifts they worked to reduce childcare costs, because without TFC it would be less cost-effective for them to work. However, a larger factor influencing the number of hours this group worked was availability of childcare outside usual hours.

2.3.2 Parents of children aged 5 or above

Parents of children aged 5 or above were more likely than average to say that TFC helped them work more regular hours (20% compared to 18% average).  

Though TFC helped them work more regular hours, it did not help them work more hours. For example, they were less likely than average to report they would not be able to work their current hours without TFC (32% compared to 35% average).  

The qualitative research explored this further and found parents with children aged 5 or above tended to decrease their use of formal childcare when their child attended school. They therefore tended to have lower childcare costs as their children grew older, claimed less through TFC and were less financially reliant on TFC. This is a likely explanation of why TFC was found to have less impact on the labour market participation of this group than average. 

There were parents of children aged 5 or above who reported that TFC helped them avoid reducing their work hours when childcare costs increased during school holidays. There were examples of parents with school-aged children who reported they would take more (unpaid) time off work to look after their children during school holidays if they could not use TFC to pay for childcare. There were also parents who reported they would have higher childcare costs during these times without TFC. Overall, the impact of TFC on the labour market participation of parents of children aged 5 or above was related to household income and parents’ ability to pay for childcare costs during the school holidays, rather than helping them in general to increase their weekly work hours.

2.3.3 Self-employed

Self-employed parents were more likely than the average TFC user to say that TFC helped them increase work hours (34% compared to 25% on average). This was also found in the qualitative research. Self-employed parents interviewed reported that TFC contributed to their ability to work and improved their household finances by reducing childcare costs. However, the hours that these parents could work were limited by the availability of childcare in the evenings and weekends.

2.3.4 Parents from Northern Ireland

The Northern Ireland Childcare Subsidy Scheme (NICSS) was introduced in September 2024 and provides a 15% subsidy towards parents’ childcare bills for children aged under 4 only. It is paid directly to providers registered with the scheme and can only be used by parents with a TFC account. This policy change was made part way through the survey and prior to the qualitative fieldwork period, so some survey respondents and all qualitative interview participants in Northern Ireland took part in the research when the NICSS was available. 

There was no statistically significant difference found between parents from Northern Ireland and the average TFC user. TFC therefore had the same impact on working hours of parents from Northern Ireland as the average TFC user. 

However, the qualitative research found that parents from Northern Ireland relied heavily on financial support with childcare costs, including TFC, to help them work due to the high average cost of childcare in Northern Ireland. Parents reported that they were most helped by the combination of TFC and the NICSS rather than TFC alone.

2.3.5 Parents of a child with a disability

Parents of a child with a registered disability were more likely than average to say that without TFC, they would not be able to work their current hours (46% compared to 35% average).  

These parents were also more likely than average to report that TFC helped their work situation in ways other than hours, such as helping them:  

• work more regular hours (25% compared to 18% average) 

• change employer (14% compared to 6% average) 

• change career (10% compared to 5% average) 

The qualitative research found that this may be because TFC contributed to making childcare appropriate for children with disabilities more affordable. TFC supported household budgets, including with travel costs to and from suitable provision. However, other factors such as access to quality childcare was a bigger factor in these parents’ decision to work than the cost of childcare.

2.3.6 Single parents

Single parents were more likely than average to say TFC helped them:  

• maintain work hours (32% compared to 24% on average) 

• work more regular hours (24% compared to 18% average) 

The qualitative research also found that TFC supported single parents with their childcare costs as they were more likely than other groups to struggle financially due to relying on only one parent’s income. However, TFC was the not the primary driver of increased labour market participation for this group. Instead, the availability of childcare around work hours was a more influential factor in deciding how much to work.

2.4 Comparison of the profiles of parents who used TFC with parents who did not

2.4.1 Work characteristics

TFC users were more likely to have the following work-related characteristics: 

• have permanent contracts with contracted weekly hours (97% compared to 95% non-TFC users)  

• both parents employed by an employer (79% compared to 72% non-TFC users) 

• both parents working full-time (48% compared to 41% non-TFC users)

2.4.2 Income, industry, and social grade

There were no significant differences in household income between TFC users and non-users.  

TFC users were more likely to have intermediate managerial, professional, or administrative roles (41% compared to 34% non-TFC users) but similarly likely to have higher managerial, professional, or administrative roles (32% compared to 29% non-TFC users). 

TFC users were more likely to work in certain industries such as: 

• administration and management (13% compared to 5% non-TFC users) 

• education (26% compared to 21% non-TFC users) 

• information technology and communications (8% compared to 4% non-TFC users) 

Non-TFC users were more likely to be either skilled manual workers (16% compared to 11% TFC users) or unskilled manual workers (2% compared to 3% TFC users).  

Non-TFC users were also more likely to work in hospitality (5% compared to 3% TFC users).

2.4.3 Childcare situation and child characteristics

TFC users had different childcare usage than non-TFC users. For example, TFC users were:  

• more likely to use only formal childcare (61% compared to 54% non-TFC users) 

• more likely to use a private nursery open all year (53% compared to 23% non-TFC users) 

• less likely to use before/after school clubs (42% compared to 62% non-TFC users) 

TFC users were more likely than non-TFC users to spend more per month on childcare. For instance: 

• 17% of TFC users spent £501-£750 per month on childcare (compared to 9% of non-TFC users) and 14% spent £751-£1000 per month on childcare (compared to 5% of non-TFC users)

• non-TFC users were more likely to spend less than £250 per month on childcare (48% compared to 23% TFC users)

TFC users also had younger children and fewer children overall. For instance: 

• TFC users were more likely to have only one child (38% compared to 28% non-TFC users) and less likely to have 2 or more children (62% compared to 72% non-TFC users)

• TFC users were more likely to have a pre-school-aged child (73% compared to 47% non-TFC users) and non-TFC users were more likely to have a school-aged child (87% compared to 56% TFC users)

Non-TFC users were more likely to have a child with a registered disability (10% compared to 1% TFC users).

2.5 Interaction between TFC and FCWP offers

At the time of research working parents of three to four-year-olds can claim up to 30 hours of free childcare per week for 38 weeks of the year. This report refers to this as the 30 hours FCWP offer. 

Working parents of nine-month-olds can claim up to 15 hours per week over 38 weeks of the year. This report refers to this as the 15 hours FCWP offer. 

In September 2024, part way through data collection for the survey, the 15 hours FCWP offer was extended from working parents of two-year-olds to working parents of nine-month-olds. Most survey respondents therefore answered questions about the 15 hours FCWP offer based on what they expected to do rather than what they actually did. 

In the findings presented below, the term ‘FCWP’ refers to both the 30 hours and 15 hours FCWP offers. Where findings relate to either the 15 hours or 30 hours FCWP offer specifically, they are referred to by their full name.

2.5.1 Use of other childcare support offers

TFC users were more likely than non-TFC users to use other childcare costs support offers for young children. For example, they were more likely to: 

• use 30 hours FCWP for three to four-year-olds (29% compared to 24% non-TFC users)

• use 15 hours FCWP for two-year-olds/nine-month-olds (16% compared to 7% non-TFC users)

This could be explained by the higher proportion of TFC users with younger children compared to non-TFC users, suggesting TFC users are more likely to use these offers because they are more likely to be eligible for them, rather than due to another characteristic of this group. 

A fifth (20%) of non-TFC users used Childcare Vouchers, suggesting a reason for not using TFC as parents cannot use both at the same time. This is supported by the finding that 11% of non-TFC users said they did not use TFC because they were using Childcare Vouchers instead. Verbatim responses in the survey and qualitative research suggests this is because parents view Childcare Vouchers as more financially beneficial, or they do not want the bother of swapping schemes.

2.5.2 Impact of using TFC and FCWP on parents’ work hours

Of parents eligible for FCWP, those using both TFC and FCWP were just as likely as parents only using TFC to say that TFC helped increase or maintain their work hours (47% TFC only users compared to 46% TFC and FCWP users).  

This can be explained by parents claiming varying amounts under each offer. Parents who used both offers did not necessarily claim more support for childcare costs than parents who only used TFC. Just under half (48%) of TFC and FCWP users started claiming less through TFC when they began using FCWP.  

Parents using both offers were more likely to say that TFC helped them work fewer hours than those only using TFC (12% compared to 9% of TFC-only users).

2.5.3 Impact of FCWP on use of TFC

Six in ten (61%) TFC users continued to use TFC when their child became eligible for FCWP, while 7% started using TFC from the time their child became eligible. 

Of those parents who used TFC with FCWP when they became eligible for FCWP: 

• 48% claimed less through TFC 

• 28% kept claiming the same through TFC 

• 7% started using TFC 

• 6% started claiming more through TFC 

• 1% stopped using TFC 

The remainder said they either did not know, were not using TFC at the time they became eligible for FCWP or ‘something else’, for example, they had applied for FCWP but had not yet claimed any hours under it or they did not think they were eligible for both. 

The qualitative research suggested several reasons why some parents kept claiming the same amount through TFC when they started using FCWP. Some parents used the introduction of 15 hours FCWP to increase use of childcare or start using more expensive childcare rather than reduce total childcare costs. Increasing the use of childcare sometimes enabled parents to work more hours. 

Some parents who increased their childcare use over time as their children grew older used both offers to help with the increased costs, especially if they had more than one child. For example, some parents used TFC for one child in a nursery, then started using FCWP alongside TFC when their second child started nursery to cover the increased costs. 

For other parents, TFC did not cover all their childcare costs in the first place, so they used the free hours provided by the FCWP offer to cover more of their childcare costs. This did not always lead to working more hours, especially for parents already working full-time. 

2.6 Expected impact of the expanded 15 hours FCWP offer 

At the time of research the FCWP offer was being rolled out, with the 15 hours FCWP being expanded from two-year-olds to nine-month-olds. Significantly more TFC users than non-TFC users said they expected to use the 15 hours FCWP offer when it was expanded from two-year-olds to nine-month-olds in September 2024 (94% compared to 83% non-TFC users).  

2.6.1 Impact on use of TFC 

When using this expanded offer, most eligible parents said they expected to keep using TFC (90%). 

In total, 45% said they expected to keep claiming the same through TFC, though over a third expected to claim less (38%).

Qualitative research suggested this was due to the same reasons people kept using TFC once they became eligible for any FCWP offer noted above. These reasons include: 

• FCWP did not cover all their childcare costs so they would use TFC to help them cover more of the costs 

• they expected their childcare costs to increase, for example if their childcare setting increased fees, if they started using childcare for a second or third child, or if they moved to a more expensive childcare provider 

2.6.2  Impact on work hours 

Most parents who planned to use the expanded 15 hours FCWP offer for nine-month-olds expected to continue working the same hours when they used it (61%) and three in ten (31%) said they expected it would help at least one parent to work more hours than they were currently working. 

2.7 Potential impact of changes to the TFC offer on parents’ work hours  

The research explored how three hypothetical changes (scenarios) to TFC might impact parents’ work hours. For all changes, most respondents said they would work the same number of hours if they happened, and a quarter of parents said they would work less if TFC no longer existed (Scenario 3). These scenarios were not presented to parents with a child with a registered disability.   

Scenario 1: increasing the annual TFC offer to £2,400 with a quarterly limit of £600: 

• 84% said at least one parent would work the same hours 

• 63% said both parents would work the same hours 

• 20% said at least one parent would work more hours 

• 6% said at least one parent would work fewer hours 

Scenario 2: expanding TFC’s eligibility to include more types of childcare provider, such as sports clubs and unregistered childcare: 

• 79% said at least one parent would work the same hours 

• 62% said both parents would work the same hours 

• 24% said at least one parent would work more hours 

• 3% said at least one parent would work fewer hours 

Scenario 3: TFC no longer existed: 

• 75% said at least one parent would work the same hours 

• 43% said both parents would work the same hours 

• 25% said at least one parent would work more hours 

• 25% said at least one parent would work fewer hours  

2.8 Which elements of TFC are most impactful in achieving labour market outcomes? 

Most (94%) TFC users reported that they used TFC in order to reduce the cost of the childcare they were currently using and just over one fifth (22%) said they used TFC to afford more hours of childcare.  

The requirement for TFC to only be used for registered childcare did not impact whether parents used it to work or work more. The most frequent reasons for not using TFC are outlined below: 

• not knowing enough about it (18%) 

• not needing it (13%) 

• not knowing it existed (10%) 

• not believing they were eligible (10%) 

Only a small number of non-users (4%) reported not using TFC because their childcare was ineligible. 

Qualitative research similarly found that TFC users could typically use TFC to pay for the childcare they wanted, though there were exceptions. Parents with school aged children reported it would be financially beneficial if they could use TFC on unregistered childcare such as sports clubs and other ad hoc holiday provision. However, they also said that this might not necessarily lead them to change their core working hours but could reduce their use of unpaid leave during school holidays.  

The monthly and annual caps on claimable amounts were not found to impact the effectiveness of TFC in helping parents work or increase their work hours. Most survey respondents (84%) reported that even if the monthly and annual caps increased, it would not change how much they or their partner worked.