Previous Governments have responded to the growing demand for childcare, driven in large part by rising female labour force participation, with increasingly generous tax breaks and entitlements.
Chart 1: Percentage of women economically inactive
Rising female labour-force participation has prompted rising demand for childcare since the early 1990s. Percentage of women economically inactive because looking after family or home, Mar-93 to Dec-14
Despite the late start, the UK’s public expenditure on childcare and early childhood education is now higher, as a proportion of economic output, than that of most other OECD countries. However, there are concerns that this spending is not distributed as effectively and equitably as it might be.
Chart 2: Public expenditure in the UK on childcare
Public expenditure in the UK on childcare and early years is close to Nordic proportions. Government spending on childcare and pre-primary education, % GDP, 2010 , OECD member states
A mix of tax breaks and entitlements
The last national childcare strategy, published by the Labour Government in 2004, was guided by three broad objectives: increasing parental employment, reducing inequality and improving child development.
The objectives implied that childcare must be both affordable enough to make it worthwhile for parents to return to work, and of sufficient quality to offer developmental benefits to children.
The resultant framework of government support created a ‘mixed market’, involving demand-side subsidies via tax credits for parents and tax breaks for employers, and supply-side funding to guarantee a limited entitlement to free early years education.
The aims of the 2004 strategy continued to influence the previous Government, which extended free entitlement and retained childcare tax credits.
It also proposed replacing employer-supported childcare vouchers (effectively, a childcare tax break for those working for participating employers) with tax-free childcare accounts that would see the Government contributing 20% of childcare costs up to £10,000 (in effect, a childcare tax break at the basic rate of income tax).
These changes were planned to take effect in Autumn 2015.
Costs are rising…
Any sort of childcare will help get parents back to work. But if it is to generate developmental benefits for children, it must also be of high quality. The regulation and professionalisation of an inherently labour-intensive service have driven up its cost, reducing the amount that can be purchased for a given parental subsidy or tax break.
Chart 3: Cost per year of selected forms of childcare
The cost of most formal childcare, and particularly nursery provision, rose substantially over the course of the last Parliament. Average cost per year of selected forms of childcare, 2010 and 2014; 30 hours per week unless indicated; dotted line indicates range across UK regions
The widespread opposition to the previous Government’s proposals, eventually dropped, to reduce minimum staff-to-child ratios from 1:3 to 1:4 indicates that parents are unwilling to compromise on quality of provision.
It is also argued that policies that subsidise parents’ purchase of childcare, rather than providing it directly, have in themselves driven rising costs.
For this reason, the Family and Childcare Trust is critical of the previous Government’s proposals for tax-free childcare. It warned that the value of this extra help for parents could be reflected in higher prices, leaving parents no better off.
These rising costs help to explain why, even though Government spending on childcare provision is comparatively high in the UK, parents themselves spend a quarter of their income on childcare, more than in any other European country except Switzerland.
…and there remain gaps in provision
Access to affordable childcare is not only a key element in reconciling work and family life, but it is also important in promoting equal opportunities and combatting social exclusion.
Investment in early education in particular can narrow the development gap between disadvantaged children and their more affluent peers, and help to protect young children from further social and educational disadvantages later in life.
But despite spending more than most nations on childcare, the UK ranks amongst the lowest in terms of support for disadvantaged families.
An OECD analysis published in 2012 suggested that early education and childcare expenditure does not make a significant difference to the poorest families in the UK.
The UK had the fifth-lowest ranking out of 27 OECD nations in terms of the percentage of early education and childcare expenditure directed at families living in poverty: around 5% of UK expenditure was directed to such families, compared with around 20% in the highest ranking countries.
The inflation of childcare costs, and the fact that public expenditure on childcare does not appear to have been directed to areas of greatest impact, have led some to conclude that government spending is likely to achieve more equitable and effective results when it is put towards direct provision, rather than paid to parents through the tax and benefit system.
The Institute for Public Policy Research, for instance, has proposed that the current provision should be overhauled and replaced with a supply-led model of universal childcare for all pre-school children.
The main parties agree that government support for childcare should be expanded, but are divided over whether this should be achieved through subsidising provision and increasing the universal entitlement to free childcare, or by extending tax breaks for parents to purchase it.
The debate over how best to direct government support for childcare is likely to continue in the new Parliament.
- Conservatives: tax free childcare to support parents back into work and 30 hours free childcare for working parents of 3 and 4 year olds
- Greens: free but voluntary universal early education and childcare services for all children of working parents from birth to the start of compulsory education which would rise to 7
- Labour: expand free childcare to 25 hours a week for the working parents of 3 and 4 year olds
- Liberal democrats: 20 hours free childcare a week for all parents with children aged 2 to 4
- SNP: support an increase in free childcare to 30 hours per week by 2020.
- UKIP: initiate a full review of childcare provision and continue to fund 15 hours free childcare a week for 3 and 4 year olds