Families with low incomes could save £1,300 a year on childcare costs under reforms that experts say would get more parents back to work and save government money.

Despite a massive expansion in free childcare for working parents, two in five say they are still unable to work extra hours, polling in a report shared exclusively with The i Paper shows.

This is because parents face a complex web of childcare schemes that do not fully cover costs, with “cliff edges” that make it harder to return to employment, research by the Early Education and Childcare Coalition and London School of Economics found.

But replacing the schemes with a single, simpler model could incentivise work and make better use of the Government’s £7bn investment in childcare, the analysis found.

The parents still turning down work

Since September 2025, working parents of children aged nine months to four years old have been entitled to 30 free hours of childcare during term time.

Working parents of children under 12 can also use the tax-free childcare scheme. The Government pays £2 for every £8 parents spend on childcare, up to a maximum of £2,000 a year.

But parents receiving the 30 free hours told focus groups they are turning down additional work and reducing hours because the cost of childcare beyond their entitlement became unaffordable.

Meanwhile, two in five parents using tax-free childcare said it has not allowed them to work additional hours, the polling by Survation found.

As part of the research, parents said they were limiting their working days to fit around the free childcare hours and that support was poorly targeted to lower-income families.

The complexity of the system also meant that some parents were unaware of options available.

Both schemes are limited to families where neither parent earns more than £100,000 – a “cliff edge” that Conservative leader Kemi Badenoch pledged to scrap if elected.

The threshold can leave parents worse off overall even after a pay rise of tens of thousands of pounds. It also penalises families where one parent earns significantly more than the other.

A third scheme for parents on benefits allows them to claim back up to 85 per cent of their childcare costs.

The reform that could save hundreds of pounds

Sarah Ronan, executive director of the Early Education and Childcare Coalition, said childcare support “should be an enabler of opportunity, not an obstacle to it”.

While government investment “makes a difference … it’s simply not reaching the people who would benefit the most”, she added.

“That is holding back children, parents and the economy at a time of rising prices and low growth,” she said.

The coalition is made up of 30 organisations including children’s charities, parent campaign groups, unions and childcare provider membership bodies.

The report recommended replacing the three schemes with just one for working families where the level of funding is instead tied to income.

One option would see families with take-home pay of £5,000 a month or below getting unlimited hours of funded childcare all year round.

A £5,000 take-home pay equates to two parents on salaries of roughly £36,000 each.

Families earning £5,001 to £6,000 would get 90 per cent of the costs covered, with the subsidy dropping by 10 per cent for every £1,000 extra earned.

Families with incomes over £12,000 would get 20 per cent of their costs covered.

Under this model, the poorest 10 per cent of families would save an extra £1,308 a year, while the average family would save £264 more than they currently do.

Dr Gillian Paull, from the Centre for the Analysis of Social Exclusion at the London School of Economics, said reshaping support “could enhance work incentives and income support for lower-income families”.

Such a scheme would cost 23 per cent less than the Government currently spends if the same number of families use it.

But even if take-up grows, it would likely not cost extra money.

Paull said this was because the scheme would redistribute more funding to poorer families. There would also be potential administration cost savings.

She added that the reforms would “create long-term benefits for families, the economy and society more broadly”.

Victoria Green, 35, has only been able to go back to work for three days a week after having her third child less than a year ago.

She and her husband are paying £800 a month for childcare for her youngest – despite the government funding. Her other two children are in school.

Green, a primary teacher in North Somerset, said working just one more day a week would push her childcare bill up to nearly £1,400 a month.

Their nursery spreads out the 30-hour entitlement across the year, not just term-time, and caps the funded hours to just five per day.

The money the Government gives the nursery for the funded hours is not enough to cover their costs, so they subsidise them with top-up hours paid privately by parents.

Green said there was “no way” she could go back to work five days a week.

“It makes it very difficult as someone that wants to stay working to actually work, because even though I understand you get the free hours, it’s not really free,” she said.

Helen Hayes, a Labour MP and chair of the education select committee, said the childcare system “remains complex, hard to navigate and expensive for many”.

She said: “Our inquiry is examining these issues in detail and we will shortly be publishing our report, with recommendations to ministers on how to make this system fair for all.”

The Department for Education was approached for comment.