The Truss administration made many missteps, but on childcare it was on the right track. Though details were lacking, the blink-and-you-miss-her prime minister was planning to rush through ‘big bang’ changes to childcare provision that would bring down costs both for parents and providers.
But it has now been reported that Rishi Sunak will shelve these proposals indefinitely and, if they are ever dusted off, it’s likely the scale of reform will be much smaller. This is a mistake. Our pre-school and childcare sector is broken. It’s unaffordable both for parents and the taxpayer and increasingly inaccessible. Providers are also closing at record levels and staff retention is poor.
Childcare is a case study in what goes wrong when government is lobbied by single-interest groups to expand its role in a particular sector. Back in the 1990s, childcare was largely private or charitable. Parents could either care for children themselves or pay for external childcare provided by private nurseries or childminders in a domestic setting.
Successive interventions in the intervening period have cost the taxpayer billions and transformed childcare into a branch of education. This has increased costs, created anomalies, driven out providers and failed to satisfy anyone. A vast array of other issues have been plastered onto it – the gender pay gap, child poverty, one-parent families and more recently our declining fertility rate – making reform difficult politically.
For parents, the cost of childcare has soared in the past three decades. The annual fee for a full-time place for a child under the age of two has risen by 171 per cent since 2000, from £5,148 to £13,939 in 2021. By contrast, the rate of increase in household earnings was significantly lower, at 66 per cent over the same period.
While parents are paying through the nose, government spending has risen from close to nothing in the 1990s to nearly £6 billion per year today. This growth has been justified on the grounds of encouraging mothers into formal employment and improving the educational attainment of young children. In practice, however, it has displaced other paid childcare and informal care from friends or family and failed to significantly increase the participation of target groups such as mothers on benefits in the labour market. The evidence of longer-term benefit to children’s development is also lacking.
Nonetheless, the typical response to rising prices is yet more government funding – and here Truss was as guilty as any TUC General Secretary. Her plans included an expansion of the ‘free’ 30 hours provision to 50 ‘free’ hours – even though the vast majority of women in full-time work do between 31 and 45 hours per week. Sunak, meanwhile, is reportedly considering extending the subsidy to include the over-twos. As with virtually every other area of policy, government is choosing the lowest hanging fruit: more state spending to patch up a failed system in need of root-and-branch reform.
The subsidy is problematic for two reasons: first, because government does not means test, it is used by parents who would pay for childcare anyway. But more importantly, in many regions the government pays nurseries below market rate per hour for a child over three. This leaves providers with little choice but to cross-subsidise, charging more for parents requiring wraparound care (outside school hours) or for under-threes.
But Truss also wanted to deregulate childcare by releasing providers from the shackles of stringent teacher:child ratios. The UK has among the strictest ratios in western Europe, with some countries, including Denmark and Sweden, having no requirements at all. A 2018 study for the Department for Education found that 78 per cent of costs in childcare are for staff: the higher the ratio, the more staff required, raising costs for nurseries and depressing wages for workers.
The points isn’t that ratios should be adjusted to a state-mandated level, but rather that the decision should be left to individual providers, who understand their own requirements and the needs of the children in their care far better than Whitehall bureaucrats. Nor can tweaking ratios alone undo the damage wrought by three decades of government mismanagement. Some 85 per cent of childcare businesses in England are making a loss or only breaking even – in large part due to the cost of complying with regulations around class size, staff qualifications, and the Early Years Foundation Stage, a bureaucratic framework amounting to a curriculum for toddlers.
But we should also ask what childcare is seeking to achieve. Tory MPs have insisted reform is needed to boost female labour market participation. Labour wants to provide comprehensive support from the end of parental leave. It may be in the government’s best interest to have mothers return to full-time work after 12 months of maternity leave and place their baby in a highly-regulated childcare setting, but how many politicians have stopped to ask whether this is what women want or is in the best interests of the child?
Given a Tory rebellion is brewing, it’s possible Sunak will once again bend in the political wind. It would be a good thing if he decides to press ahead with deregulating the sector. But increasing childcare subsidies would show once again that, even under their third Prime Minister this term, the Tories are incapable of making tough choices.
Comments