In a report published on Monday, the IPPR said that switching financial support for childcare from the Working Tax Credit to the Child Tax Credit would widen support for 4.7 million families by extending the entitlement to those where parents do not work and those who are not eligible for the childcare element of the Working Tax Credit.
The IPPR estimates that this reform would cost an extra 2 billion a year.
It identifies four categories of families who are currently missing out - lone parents; families facing higher costs, such as those living in London or with disabled children; children whose parents are not in work; and children in large families.
Graham Cooke, co-author of the report, said tax credits support parental choice and not enough families are getting help through tax credits.
'Often, those parents missing out are the ones that would benefit from high quality childcare the most,' he said.
Currently, 'support starts and stops' when parents move in and out of work, but support for childcare 'shouldn't leave parents out just because they don't work', he said. When people's circumstances change, 'the actual amount might change but the eligibility shouldn't'.
The report also notes a need for both supply-side and demand-side funding for childcare.
Liz Bayram, chief executive of the National Childminding Association, said, 'The tax credits system is complex, and simplifying eligibility for this benefit would help far more families to be able to access funding for childcare. More could be done to make supply- side funding benefit all those providing childcare, particularly in sustainability funding or money earmarked for improving affordability. We know from our member childminders' experiences that supply-side funding in the shape of a start-up grant has really helped them to begin their career in home-based childcare.'
Child Poverty Action Group chief executive Kate Green said, 'Financial support for childcare costs through the Working Tax Credit has not yet reached as many parents as it could have done. The IPPR's idea of linking the subsidy to Child Tax Credit instead would certainly widen the number of families who are eligible.'
Equal Access? Appropriate and affordable childcare for every child is available at www.ippr.org.uk.