Childcare is once more a hot political topic, with Tory MPs pressurising Rishi Sunak to come up with a plan to help working parents. Many were distinctly disappointed with reports the PM had shelved Liz Truss’ plans, which involved 50-hours a week of ‘free’ childcare for under-3s and the loosening of staff-child ratios.
But with Labour promising a plan ‘like the birth of the NHS’ and commentators insisting childcare will be a key battleground at the next general election, the Department for Education is said to be working up a proposal for 30 hours a week for children between the ages of nine months and three years.
This would complement the existing provision for three and four-year olds, where all working parents get 15 hours free, and most get 30. It would at least double the amount of money the taxpayer currently spends on childcare – already running at more than £6bn a year.
There are many reasons why the Government might be considering the expansion of childcare subsidies beyond the gathering political pressures. It might hope to mitigate the expense of childcare amidst the cost of living crisis. It might be to attempt to improve the educational prospects of disadvantaged children.
But the main reason for the current interest seems to be the belief that many mothers are not working, or are taking on fewer hours than they would like, because of the high cost of childcare. For some, the salary won’t cover the childcare bill. This is an argument made by pressure groups such as Pregnant Then Screwed, but also by business representatives such as the CBI.
How much stock should we put in the idea that more extensive childcare subsidies will increase the workforce at a time when the number of economically inactive adults of working age is on the rise and vacancies still sit at over 1 million, thereby boosting economic growth?
Already, the proportion of mothers of dependent children who are in work in the UK is at historically high levels, at over 75% compared with 67% 20 years ago. The numbers in employment with their youngest child aged 0-2 are relatively high by international standards. Although lower than countries such a Sweden, the percentage in employment in the UK is well above the EU and OECD averages.
There are over 1.5 million mothers of dependent children who are not working. Of these, half appear to be doing so out of choice. They include substantial numbers of women from some ethnic minorities, especially those of Pakistan, Bangladeshi or other Asian heritage (who currently account for over 8% of births in England and Wales) where labour force participation remains low. Further, significant numbers of younger women who are constrained by lack of affordable childcare would like to study rather than work in the short run.
It is true that the prospect of higher net income due to further subsidised childcare will make work more attractive for some mothers. But the workforce gains should not be exaggerated. The scope for employment expansion among highly-educated mothers is limited: already 85% of university-educated mothers with dependent children are in work, as opposed to 55% of non-graduates. Such is the nature of our job market, mothers without a degree may find it harder to secure work, and jobs may be relatively poorly paid if they are successful. Those on Universal Credit may find the withdrawal rate so steep that work is unattractive even if suitable childcare is now affordable.
So it seems unlikely that there would be a major expansion of employment, even with a very large increase in public funding. And even if more mothers are attracted into employment by cheaper childcare, that would mean more children at nursery and more staff needed to look after them. The need to find extra childcare staff would therefore offset some of the gains from increased maternal employment elsewhere in the economy.
The real beneficiaries of further free childcare would be mums who are already in full-time work, many of whom already have the money to cover nursery costs. This is classic ‘deadweight’ policy, where extra government money won’t do much for labour market participation, but may well subsidise some nice skiing holidays.
Nor is there any guarantee that extra funding will generate extra places. We already know that, with the existing ‘free’ provision, government pays below the market rate in some cases. This has led nurseries to cross-subsidise, by hiking rates for parents who are not entitled to ‘free’ care, or those who require wraparound hours not covered by public funding. Where nurseries have been unable to recoup costs, such as in poorer areas without enough well-off parents able to subsidise providers, they have closed or restricted the availability of free places.
Without a dramatic increase in the standard government rate, the expansion of free childcare to under-3s could mean private nursery provision shrinks rather than expands. The losers would probably be mothers in poorer areas, where provision is already unsatisfactory.
This will then increase the pressure for local authorities and schools to increase nursery places – which is already the Labour Party’s answer. But it would be an expensive solution; these ‘maintained’ nurseries are more costly to run (they receive higher unit funding than private nurseries do for their free places) and they tend operate for shorter hours, with less flexibility from parents’ perspective.
This squeezing out of private nurseries and its substitution by government provision would recapitulate the squeezing out of private schools in the 19th century, leaving a rump of expensive independent schools beyond the budget of most families. Similarly, we might expect to have a large publicly funded nursery sector, heavily unionised and constantly complaining that it wasn’t getting a big enough budget, alongside a small private sector offering a superior but very expensive service.
There is no doubt that the childcare sector is a mess. But this can be fixed, and costs brought down, with deregulation in areas such as staffing ratios, the Early Years Foundation Stage and restrictions on childminding. Where public funding is required, it should be much more targeted and should involve putting top-up vouchers in the hands of parents, leaving nurseries to set their own fees to match local conditions. What it doesn’t need is an extension of the existing dysfunctional system of subsidies to parents of younger children.
But we should perhaps also ask ourselves a more basic question: should government really be quite so keen to separate very young children from their parents for big chunks of the week – and is it doing so with the child’s best interests in mind?
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
