5 thoughts on “Demand and supply: why the Budget fails on A-level economics”

  1. Posted 21/03/2013 at 13:59 | Permalink

    Childcare is inherently expensive, Kristian, because it is inherently labour-intensive. Regulations on ratios might make it more expensive but it is never going to be anything other than labour intensive.

    You are, however, correct about the bloated regulatory costs. To give one example: My wife works in an independent school in the ‘Reception’ year. Because “rising fives” are entitled to childcare vouchers that can be used for that year, the local council insists on ‘moderating’ the provision. This means pre-moderation inspections and post-moderation inspections and a whole raft of bureaucracy in-between. This is for a school department which has already been recently inspected as part of the whole school inspection regime – and rated as “outstanding” on every single criteria, without exception.

  2. Posted 21/03/2013 at 17:26 | Permalink

    HJ, it’s quite possible that I’ve initially overestimated the impact of these ratios. Still, I wonder what else explains the big differences in the international comparisons (see p. 92 in my book; I can’t copy all the figures all in here). Can that all be due to inspections? Or is there something else?

  3. Posted 21/03/2013 at 18:40 | Permalink

    Kris, ten years ago, my wife briefly thought about going into childcare at home when our kids were young. The list of forms to fill in, hurdles to jump, authorities with their own checklists (Ofsted, local authority, local health authority, fire brigade, CRB checks on all staff, GP test for illnesses, health and safety blah blah blah) was terrifying, what it boiled down to was six months of bureaucracy – the inspections all had to be in a certain order, one after another with weeks of gaps in between – and actually having paid staff on the payroll before she/we could even accept our first paying guest.

    I am sure it has got much worse by now. So there is a massive barrier to entry. Once you are open, you can charge as much as you like and the subsidies just push up the price (they cannot be competed away by new entrants).

    That said, an average one adult to four kids ratio seems OK to me, so if one worker is low paid £16,000 that’s staff costs of £4,000 per child per year and you can add on 50% at least for overheads, rent, NICs and so on, so thats £6,000 per child = £120 per week for the most basic basic set up.

    As to Osbornes Brownian housing boom, this is like negative land value tax, it will makes things far far worse and just end up with bankers and large landowners getting even richer for doing even less.

    The answer might be reduce barriers to entry/increase supply, but that’s just a pull. What the rent seekers really need is some low cost competition from council run nurseries that offer places for £80 a week (schools are free – why not nurseries) and loads of council housing where the council stubbornly charges £80 a week rent for whatever size a home and that will push prices down as well. A bit of unfair competition if you like.

  4. Posted 22/03/2013 at 08:33 | Permalink

    Kris, no I don’t think it’s all down directly to the cost of inspections. However, as Mark Wadsworth points out above, childminding regulations/inspections have been hugely bureaucratised in the last decade or so, leading to a fall (of about half, I believe) in the number of people prepared to be childminders. Thus does not surprise me at all since they now have the whole EYFS curriculum imposed on them. My wife has to deal with this in her school and you just wouldn’t believe what is involved (most of it to no good purpose). The point is that childminding was always the least expensive form of childcare so now people increasingly have to use more formal provision such as day nurseries. You then get into the costs of premises which, as you know, are highly inflated in this country. These things conspire to raise the cost. I do not doubt that lower ratios can sometimes be manageable but, frankly, if you ask anyone who actually has to do the job, there is limited scope.

  5. Posted 22/03/2013 at 12:38 | Permalink

    Mark, HJ: Makes sense; too bad that that kind of stuff is hard to quantify.

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