Contradictory UK childcare policy won’t halt rising costs for parents

It may sound incredible given the current political debate, but the UK government now spends more as a percentage of GDP on childcare than all European countries except Denmark. Yet the direct costs to parents continue to rise inexorably.

Nick Clegg’s opposition to the reform of adult-child ratio limits demonstrates the difficulties in reaching agreement on the contentious area of childcare and pre-school education. Once largely left to families and a small market sector, childcare is increasingly a political issue. But policy is being driven by three very different objectives.

First, there is pressure to cut costs. Some middle-income working parents find themselves spending a third or more of after-tax earnings on childcare. Secondly, many argue that improvements in the quality of childcare and pre-school education can better prepare children for big school – and perhaps offset disadvantages faced by those whose home life lacks structure and support from a stable family. Thirdly, providing affordable pre-school care to welfare claimants, particularly single parents, may help get them back into work and reduce the benefits bill.

Unfortunately these objectives can conflict. We have therefore landed ourselves with an expensively ineffective mess which reduces parental choice.

Quality concerns have led to excessive regulation. On top of the staffing ratios (among the tightest in the world), demanding health and safety conditions, local authority and Criminal Records Bureau checks, we also have the unnecessary and expensive Early Years Foundation Stage. All “early years providers”, whether large nurseries run by businesses, state primary schools or childminders in their own homes, have to follow a structure of learning, development and care for children from birth to five years old, monitored and overseen by Ofsted.

The predictable effect has been to raise costs substantially. Britain now has half the registered childminders it had in the late 1990s (although, perhaps worryingly, unregistered arrangements may have increased). Smaller nurseries have also had to close.

And higher costs have meant many have difficulty paying for childcare out of taxed incomes. One government response has been to make a limited amount of pre-school education free to all three and four-year olds and up to 40 per cent of two-year-olds. A system of employer-backed vouchers and tax credits was set up under the last government: it is now being dismantled, and we are instead being offered £1,200 a year tax breaks for children in formal childcare. But indiscriminate subsidy does little to offset the educational disadvantages which may be suffered by poorer children. I’m now gifted more than £3,000 a year for my three-year-old, but the take-up rate among low-income groups is very low.

Against this background, the proposals to relax staffing restrictions are a modest attempt to allow childcare providers greater flexibility. It could lead to lower costs, and there is no evidence that similar ratios have proved problematic in other countries.

But education minister Elizabeth Truss is simultaneously proposing more demanding educational qualifications for childcare workers. This will probably further reduce the supply of childminders and limit the growth of small nursery businesses. It may also, incidentally, block access to the occupation to many immigrant and minority ethnic providers.

Government policy has increasingly forced childcare into a framework of formal education, although there is little evidence that this is what parents want. Most children are not in nursery full-time, and an elaborate curriculum is inappropriate. Parents need assurance that their children are in a safe, friendly environment and offered stimulation within a structured day. But small children, who already start compulsory education earlier than in many countries, need not be in mini-schools from infancy.

Other suitable environments are possible and should be encouraged. A childminder who looks after a child two or three afternoons a week should not be subject to the same regulations as a large full-time nursery. While some minimum health and safety standards need to be set, we do not need Ofsted inspectors to butt in.

And if we need to provide limited subsidies to parents, we must think about them more carefully – bearing in mind, too, that the most important childcare takes place in the home. People who stay at home to look after small children, or use family members to help, should not be ignored if government must dip into the collective pocket.

This article originally appeared in City AM.

Editorial and Research Fellow

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.