The cost of childcare in the UK

I haven’t been very active on the blog recently (it’s been really busy here at ELHQ HQ) but I thought I’d write a little something about a really interesting Newsnight feature that I watched earlier in the week about the cost of childcare in the UK.

I knew that the cost of childcare in the UK is expensive but it was still quite surprising to learn that as many as many as a million mothers are priced out of employment because of the cost of childcare. Those who do return to work will often face a reduction in their earnings.

The UK has a relatively low percentage of working women. According to the Office for National Statistics 63% of UK women are in employment. In Sweden this figure is 73% and in Denmark it’s 75% (figures taken from a 2009 survey as reported in the Economist).

Social and Economic Benefit of women in the workforce

The loss of these 1 million careers has a negative effect for the women concerned and their families but it also has wider implications for the country as a whole. The Newsnight report summed it up in the following terms:

“Over the last 40 years the rise in British living standards appears to be driven at least in part by women entering the workforce. But in recent years that rise in living standards seems to have plateaued and the high cost of childcare seems to have plaid its part in that plateauing.”

The tax revenue lost when women leave the workforce is significant. This is why the Governemnt are supposedly considering reforms to the tax system and relaxing restrictions on childminding to help women go back to work after having children (there will be announcements after Christmas).

Research by the Institute for Public Policy Research shows that 25 hours of childcare provision per week would provide a net benefit to the tax payer of between £4,000 and £20,000 over 4 years for every parent who returns to work.

Childcare funding currently available

The current situation cannot really be blamed on a lack of investment. Successive governments have invested a significant amount of money in to childcare. The Organisation for Economic Co-operation and Development (OECD) estimates that in terms of how much the Government puts in to childcare the UK is only behind parts of Scandinavia.

Where does this money go?

–  All 3 and 4 year olds receive 15 hours of paid childcare during term time.

–  By September 2014 disadvantaged 2 year olds will also receive help – it will be extended to 2 year olds from the poorest 40% of homes.

–  Childcare tax credits can be claimed where the parents / parent work at least 16 hours a week. Most household entitled to claim it earn less than £40,000 a year. 455,000 families receive an average of £65 a week. The Government will pay a maximum of 70% of any claim up to £300 p/w (parents must pay a minimum of 30%).

–  There’s also employer help – the most common form is a tax free childcare voucher. This can save employees up to £77 a month.

Despite this support the cost of childcare remains incredibly high. The average UK family spends 27% of its income on childcare. This figure has dropped slightly but the cost of childcare in the UK is still considerably higher than in most other European countries – as we discussed in a previous blog post.

It’s a frustrating scenario that doesn’t appear to be benefiting anybody. It’s not as if anybody is getting rich as a result of childcare subsidies! Parents struggle to pay the bills and yet running a nursery is hardly a lucrative business. I know this from experience as my mother ran a nursery in Swansea when I was growing up and we lived a very frugal lifestyle to say the least!

I think it’s also fair to say that childminders and the early years workforce in general are not exactly earning a fortune (in fact I would say they are woefully underpaid considering the importance of the job that they do).

The regulation of Childminders  

It has been argued that one of the factors pushing up the cost of childcare for very young children is the amount of regulation imposed upon childminders. The government is rumoured to be thinking about freeing up some of this regulation to increase the supply of childcare. In particular they are considering widening the scope of people who can register as a childminder, to make the application process easier and to revaluate the number of children that a childminder can look after. In the UK this is restricted to 3 children. This is lower than most European countries – in France for example a childminder can care for up to 5 children.

Supply Side Funding

While it’s undoubtedly true that a lot of investment continues to be made in to childcare, there seems to be a lot of debate about whether this funding is effectively targeted. The way it currently works is that the parents must pay whatever the nursery or childminder asks and then they can apply for some of this cost to be refunded.

Many believe the government should actually provide the childcare rather than simply subsidise some of the cost as if there’s a shortage of childcare in the first place then prices will naturally be very high at the point of use.

It may be more cost-effective for the Government to fund the childcare directly with the cost to parents calculated on the basis of the household income rather than continue to subsidise at the current high rates. So in other words the Government would fund the nurseries directly (supply side funding) so that they can then offer affordable childcare to families on low incomes. This was an argument put forward during the Newsnight feature by Professor Helen Penn the author of a report soon to be published in to the costs of childcare in the UK.

As an aside to this article I noticed this week that the Institute of Education has recently published research which suggests that pupil test scores would be increased and educational inequalities would be reduce with the introduction of a universal pre-school systems. In particular they claim that “the UK would have a much higher ranking in international pupil performance tables if a universal pre-school