Childcare conundrums


The Daycare Trust and Save the Children have published the results of a survey suggesting that almost a quarter of parents with young children have gone into debt to pay for childcare. It is claimed that British parents pay a higher share of their net of tax income on childcare than any other country in Europe. From this it is argued that the government should reverse planned cuts in the childcare element of working tax credits. Amongst other justifications for this is the belief that this would encourage more parents to go out to work, which is held to be a good thing. Going further, media commentary has suggested that we should increase subsidies to childcare rather than apparently cutting back.

This is a sensitive subject. Child welfare is of the highest importance, but as always when people argue for spending taxpayers’ money it is worth looking behind the claims of interest groups.

First, the reform to tax credits themselves: the logic of what the government is trying to do is sound. It wants to combine into a single payment child tax credit, working tax credit, income-related jobseeker’s allowance, housing benefit, income support etc, rather than having these separately determined by different criteria. At the same time it is hoped to focus rather more on the poorest. These at least are sensible objectives.

Second, the evidence suggests that child tax credits, whatever other virtues they have, do not seem to have much of a positive effect on getting parents back into work (and of course not everybody agrees that this would necessarily be desirable anyway). Policy towards childcare should not be driven by the separate issue of increasing employment.

Third, although costs to parents of childcare are high in Britain as they are not directly subsidised to the extent they are in Germany, the Netherlands or France, this certainly does not mean that our public spending in this field is low. In fact the most recent comparative figures I have seen from the OECD suggest that we spend slightly more public money on childcare and early (pre-compulsory school) education per child, and as a percentage of GDP, than each of these three countries. This apparently paradoxical result shows the difficulty of making simple international comparisons. The proportions in age groups differ from country to country. More women with small children work full-time in the UK than in most other European countries, and thus make greater use of public spending. And the form of this spending varies as the mix of nursery, childminding, crèches and pre-school differs: these forms of provision have very different cost structures.

In the last decade the UK has gone down the costly route of professionalising and bureaucratising childcare to an unprecedented extent. Increasingly childcare is delivered in formal nurseries and schools. It has been incorporated into the educational system, with an Early Years Foundation Stage laying out in detail what young children should achieve at particular ages. All publicly-supported childcare providers must adhere to this National Curriculum for Tots. Despite our having the earliest start to compulsory schooling in Europe, we now also offer 15 hours a week of ‘free’ (taxpayer-funded) pre-school from the age of 3, with some groups now entitled from the age of two. This type of provision, usually as an annexe to infant or primary schools, is particularly expensive given the qualifications of its staff and the associated administrative backup. Union membership is also common and this can reduce flexibility and further raise costs.

The UK has also spent a lot in recent years on the Sure Start scheme, aimed at improving the educational preparation of disadvantaged children. By the end of the last government’s term of office there were some 3,500 (often purpose-built) Children’s Centres offering drop-in facilities for childcare and advice. The National Audit Office has reported that Sure Start provision is often badly focused and poor value for money, not really hitting its ostensible target of raising the potential of the poorest children.

This has all had the effect of crowding-out private nurseries, which are forced to staff to similar levels and qualifications as state-funded nurseries and schools and are thus increasingly expensive. Less formal childcare has collapsed. The number of registered childminders is around half what it was a decade ago. Increasingly stringent regulations mean childminding is no longer a plausible option for many women without a good educational background and firm grasp of English. Such informal childcare, often in the homes of childminders and sharing in their family life with other children, would be the preferred choice of many parents and is arguably more suitable for very young children than larger and less personal institutions.

In Britain, child tax credits and employer-provided (but taxpayer-supported) childcare vouchers can only be used in formal nurseries and with residual childminders who meet increasingly strict criteria and sign up to the Early Years curriculum. Other types of informal care, for example by grandparents and friends, cannot (as in some countries) be taxpayer supported. Nor of course can the ultimate type of informal care, by parents themselves, be subsidised.

So the consequence of policies started by Labour and broadly continued by the Coalition is one of an increasing formalisation, a kind of nationalisation of early childhood. It is costly to parents and is not going to get cheaper any time soon. Rather than seeking to pump further public money into the system we should surely take a long and critical look at what we are currently doing. Do we want to help parents back into the workforce, to raise living standards of families, to offer caring employment to the less-qualified, to give disadvantaged children a head start? Or is this another case of over-reach by government?

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.