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IEA - Many families now spend a third of their net income on childcare, finds new report

IEA releases report on government intervention in the childcare sector

Childcare provision in the UK is amongst the most expensive in the developed world. This is despite the government pouring more than £7 billion into the sector every year. A new report released yesterday from the Institute of Economic Affairs calls for universal ‘free’ care to be abolished and for costly regulations to be scrapped in order to make childcare more affordable.

A family earning roughly the national average can now spend more than a third of their net incomeon out-of-pocket childcare costs. Government subsidies such as the universal ‘free’ hours entitlement have distorted prices and are poorly targeted – so that those who need the most help don’t receive it, while many affluent parents are generously subsidised.  And overarching regulations such as staff-child ratios and occupational qualifications have pushed many lower-cost providers of childcare out of the market.

The IEA’s report illustrates how government intervention in the childcare sector has dramatically raised the costs of childcare while doing little to improve quality of care or the future prospects of young children.

Failures of government policy

  • Government policy has made childcare expensive for parents and taxpayers – subsidies such as ‘free’ hours entitlement have distorted the market price of childcare and led to inequitable cross-subsidisation, while excessive regulation has raised costs for providers.
  • Parental choice is reduced – with alternatives being forced out of the market, the government has prescribed a formalised type of childcare that does not suit every family’s needs and preferences. Many families who rely on family support with childcare – especially those from some minority communities – receive no help.
  • Little evidence of quality improvement – any benefits of early years education weaken with age and enforcing the Early Years Foundation Stage curriculum has put costs up for providers while driving large numbers of childminders out of business.

Recommendations

Policy should be oriented towards allowing parents to make free choices and judgements about the types and quality of provision they want for their children. To achieve this the government should:

  • Abolish the universal offers for ‘free care’ – instead provision should be directly targeted towards disadvantaged families who need it.
  • Scrap ‘tax free’ childcare – a universal credit system would be preferable as this targets the unemployed or part-time workers.
  • Remove staff-child ratios and mandated qualifications of carers – to ensure different types of childcare are provided for parents to choose from.

Commenting on the report, joint author Len Shackleton, Editorial and Research Fellow at the Institute of Economic Affairs said: 

“Government interventions in the childcare sector have resulted in both British families and taxpayers bearing a heavy burden of expensive provision. Regulation has led to an excessive formalisation of childcare and pre-school, which has not only pushed up costs but paid scant attention to parental preferences. Many families may not want the structured form of pre-school that the government requires as standard. 

“At a time when many families are facing a cost of living crisis, it is important the government rethinks its involvement in childcare. Rowing back on unnecessary regulation and focusing public funds on those who need it, rather than subsidising the well-off, would be a good way to start.”

Notes to editors: 

For media enquiries please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk 020 7799 8920 or 07791 390 268.

The full report, written by Ryan Bourne and Len Shackleton, Getting the State out of Pre-School and Childcare can be downloaded here.

For a two page summary of the report please click here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.

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