Kristian Niemietz

Ed Balls’ new plans would leave taxpayers with world’s highest childcare bill

Up until about 2004, the Labour government’s strategy of fighting poverty by concentrating on three priorities – government spending, government spending and government spending – had seemed to work rather well. On a number of measures, living standards of low- to middle-income earners showed notable improvements.

But from then on, progress on this front suddenly came to a halt, or even went into reverse again on some measures. This was a bit of an embarrassment for advocates of a Greek-style approach to public spending, because during those years, they had largely gotten their way. Social spending in the UK had reached record levels, and with that potential largely exhausted, what else was there to do?

At its party conference in Brighton, the Labour Party has now finally found the answer: more government spending. Parents of 3- and 4-year-old children are currently entitled to 15 hours of free childcare per week, a number which Ed Balls plans to raise to raise to 25 hours, financed by an increase in the bank levy. That is good electioneering: everybody likes children, nobody likes banks anymore, so what could be more obvious than taking something from the banks and investing it in the children?

But it is also poor economics. Firstly, it has to be reemphasised that public childcare subsidies in the UK are already amongst the highest in the world. As a proportion of GDP, the UK already spends as much on childcare subsidies (1.1%) as Sweden, which is usually presented as the role model on this count. Apparently, Swedish spending levels do not guarantee Swedish outcomes. In fact, the UK probably spends a lot more than Sweden per hour of childcare, because while overall spending levels are virtually the same, coverage in Sweden is more extensive.

Secondly, among the various funding streams of childcare subsidies, the entitlement to free childcare is among the least well-targeted ones.

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