Hundreds of families in Ceredigion were using a government scheme to help with the cost of childcare last year, new figures show.

The Tax-Free Childcare scheme tops up cash families pay into a pot for services such as childminders, nurseries and nannies.

Across the UK, there were more parents than ever using it in the 2022-23 financial year.

However, industry body the Early Years Alliance called it a “regressive policy” and urged the Government to redirect the funding to ensure it benefits those families most in need.

HMRC figures show around 405 Ceredigion families used the scheme in the year to March 2023 – up from 280 the year before.

Families get £2 for every £8 they put into an account set up for childcare spending – up to £2,000 per child per year, or £4,000 for a child with a disability.

It is available for children aged 11 and under, or 16 and under if they have a disability.

There were almost 650,000 families benefitting from the scheme across the UK – 27% more than in 2021-22 and a substantial rise from just 57,000 six years ago.

Neil Leitch, CEO of the Early Years Alliance, said countless families are still unaware they are eligible to receive support through it, or that it exists at all.

He said: “What’s more, it remains an entirely regressive policy, with parents with more disposable income receiving more financial support than those with less.”

He warned childcare providers are being forced to raise fees due to “sustained underfunding”, and the sector is facing “even greater pressure” with early entitlements soon to be expanded.

Nationally, there were open accounts for 1.3 million children, but the used ones were for 836,000 children, including 505 in Ceredigion. The latest population estimates from the Office for National Statistics show there were 9.1 million children aged 11 or under in the UK as of 2021.

However, not all children qualify for tax-free childcare.

Applying parents must be in work and earning at least the equivalent of the national minimum wage or living wage for 16 hours per week. Those claiming Universal Credit, tax credits or certain other benefits, or when one parent earns more than £100,000 would be ineligible.

Purnima Tanuku OBE, chief executive of the National Day Nurseries Association said: “There is still a huge gap between the numbers of eligible parents and those who are using their account.

“It is a shame that parents aren’t benefiting from this support and nurseries are losing out as a result.”

She added the complexity of the system is the main reason why the support isn’t accessed.

The NDNA has called for all childcare funding to be put into a single online account, to make it easier for parents to access.

“This money should be re-invested in supporting childcare providers to deliver on the Chancellor’s childcare expansion promises,” Ms Tanuku said.

A Government spokesperson said: “Last year we announced the single biggest childcare investment this country has ever seen, saving parents up to £6,500 on average and helping tens of thousands back to work.

“Take-up of Tax-Free Childcare continues to grow and roughly 60,000 more families used it in November 2023 compared to the year before.”