State intervention is making childcare unaffordable

A couple of weeks ago an all-party Parliamentary Group report warned that many nursery schools may have to close, and called for a financial bailout from our beleaguered government.

It was only the latest demand for extra state spending: in the last few months the CBI, the British Chambers of Commerce, the Welsh government, the Joseph Rowntree Foundation and many others have joined the chorus.

Pre-school education and childcare were until the late 1990s largely the preserve of the private and voluntary sectors. Now they have become yet another area, like transport, schools and the health service, where government is omnipresent. Pressure groups continually proclaim a crisis while demanding more and more taxpayer-funded largesse and tighter and tighter regulation.

But government is the problem, not the solution. Government policy has made childcare expensive both for parents, many of whom are paying out up to a third of net income, and the taxpayer, currently in for over £7bn and with more spending already planned.

Government has imposed an unnecessarily prescriptive Early Years Foundation Stage, a sort of national curriculum for tots (overseen by the inevitable Ofsted) – an astonishingly paper-heavy tick-box exercise. It has imposed some of the highest staffing ratios in Europe, and is requiring unnecessary new qualifications for childcare workers. This has raised costs and driven out smaller nurseries and large numbers of childminders – whose numbers have halved in the last 20 years.

Government funding also has perverse distributional effects. Some well-off parents in full-time work benefit substantially from their entitlement to “free” childcare, due to be extended to 30 hours a week for many later this year. Where government support for free childcare for these parents is inadequately funded, as it tends to be, providers have to raise fees for other parents to cross-subsidise (a result which we also see in care homes for the elderly).

Meanwhile, poorer parents looking after children themselves, or using family members to help, gain nothing. This is disproportionately the case for families from some minorities, such as those of Bangladeshi or Pakistani heritage, who make little use of formal childcare.

Over the years, policy has accumulated several sometimes conflicting aims: to encourage more parents into work, to raise the quality of provision, to make childcare more accessible, and to improve pre-school preparation for disadvantaged children with the objective of boosting future educational performance and life chances.

Given these disparate aims, it is difficult to evaluate performance overall. But evaluation on each of these criteria suggests unimpressive results. For instance, the cost of getting an extra mother into employment has been calculated at £65,000 per job, with many of these jobs being part-time. Provision for disadvantaged children is inadequately targeted and seems from published evaluation reports to have little lasting effect on future educational performance.

The increased formalisation of childcare and its orientation to an early-years education agenda does not necessarily square with the wishes of parents, many of whom only want to use childcare for limited periods. It has also made it more difficult for less-qualified people, including those from minority and immigrant groups, to obtain work in the childcare sector.

Government policy on childcare has grown up through the influence of well-meaning and concerned politicians and pressure groups. But as in many areas, good intentions don’t necessarily make good policy.

In our new Institute of Economic Affairs report, Ryan Bourne and I argue that we need to fundamentally review what we are doing in this area and to clarify where government intervention and support is needed, and where it is not. We need to pay far more attention to unmediated parental preferences rather than childcare “experts” telling parents what they need. And we should target any necessary interventions much more effectively than we have been doing.


This article was first published 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.

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