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IPPR - £1 billion shortfall in Government childcare extension pledge

Government plans to double free childcare hours for 3 and 4-year-olds could be underfunded to the tune of £1 billion, IPPR have calculated in a new report.
 
The shortfall could drive down childcare quality and leave the needs of working families unmet, with poorer outcomes for children and less choice for parents as the market shrinks.
 
The report, Extending the early years entitlement– costings, concerns and alternatives, proposes new alternative solutions to help parents back to work and boost children’s development.
 
The Government have committed to increasing free childcare hours for 3 and 4-year-olds in working families from 15 to 30 hours per week, but have only allocated an additional £365 million for the first full year (2017/18) rising to £670 million in 2020/21. These figures are significantly lower than other independent estimates.
 
The report has costed the Government’s proposal at £1.6 billion annually - £1 billion more than the allocated budget for 2017/18. IPPR is calling on the Chancellor, George Osborne, to announce additional funding to deliver the extra free childcare in his November Spending Review.
 
The calculations do not take into account potential savings that the Government’s extension could achieve by reducing the amount of childcare support claimed under tax credits or universal credit. However, these savings are likely to be small and still leave a significant disparity (see Notes to Editors).
 
The report warns the under-funding the free childcare hours would:
 
• Lead to a smaller, less flexible provider market, as providers reduce services or refuse to offer free hours;
• Reduce parental choice and potentially push up the costs for paid hours outside the free offer;
• Hit families in poorer areas hardest, who have fewer and less flexible local providers and may be forced to adjust their working hours.
 
IPPR are concerned that the Government have announced their budget before the Department for Education review into hourly rates in the childcare sector has concluded, and does not take into account the impact of minimum wage increases.
 
Almost half of local authorities are already struggling to find sufficient childcare provision for working parents, and many providers claim that hourly rates are already too low to cover their costs. In this context it is difficult to see how the new free childcare extension can work effectively.
 
In contrast to the £365m pledged by UK Government, the Scottish Government costed a similar proposal at £880m plus additional capital funding: there are four times as many eligible children in England than in Scotland.
 
IPPR’s new report sets out new ways of improving childcare provision within the Government’s own fiscal rules of the Spending Review. These include:
 
• Protecting and targeting free hours at 2-year-olds (currently missed out by the new extension) where childcare support is at its lowest despite costs being high. We propose universalising the 2-year-old offer, which currently goes to the 40 per cent most disadvantaged children.
• Providing an additional 10 weeks for the 40 percent most disadvantaged 2 to 4-year-olds; this will expand provision from 38 to 48 weeks per year and allow working families to cover their holiday care.
• Protecting and extending parental leave, improving access to good flexible work and removing financial disincentives for second earners under Universal Credit.
 
Giselle Cory, IPPR Senior Research Fellow and report author, said:
 
“The Government should be applauded for its commitment to additional free childcare hours, but the drastic underfunding of the policy calls into question whether it can be delivered without driving down quality and choice. When councils are already struggling to fund sufficient childcare provision on current hourly rates we know there is a problem: the £1 billion shortfall in delivering the extension will make a bad situation worse.
 
At a time when parents desperately need high quality care for their children, it is clear the current system is creaking at the seams even before it tries to cope with delivering extra free hours with less than a quarter of the cash we believe it requires. The Government must prioritise properly funded childcare provision to meet demand, and ensure there that standards do not fall.
 
“The Department for Education review into hourly childcare provider rates must have a good understanding of provider costs, and any rise in rates fully reflected in the funding of the free childcare extension”
 
Contact
 
Danny Wright – 07887 422789 d.wright@ippr.org
 
Sofie Jenkinson – 07981 023031 s.jenkinson@ippr.org
 
Lester Holloway – 07585 772633 l.holloway@ippr.org
 
Notes to Editors
 
IPPR’s new report – Extending the early years entitlement: Costings, concerns and alternatives – is available here: http://www.ippr.org/publications/extending-the-early-years-entitlement-costings-concerns-and-alternatives
 
1. The Department for Education is currently reviewing the hourly rates paid to childcare providers. This is due to report back in the autumn. Employment minister Priti Patel, together with childcare minister Sam Gyimah, are leading an implementation taskforce to ensure the sector can deliver the extension.
 
2. The IPPR analysis in this paper uses a static estimate of the cost of extending the free offer. It does not take into account potential savings that this extension could achieve by reducing the amount of childcare support claimed under tax credits or universal credit. However, as noted by the IFS, these savings are likely to be small (IFS 2014a). Our estimates suggest that these savings may be between £200 and £400 million per year. Nevertheless, this still leaves a significant disparity of at least £800 million between the government’s costing and IPPR’s own costing. A full explanation on the methodology is provided in the Appendix on page 18 of the report.
 
3. IPPR’s analysis used assumptions for take-up, hourly rates and population published in the Institute for Fiscal Studies’ Green Budget 2014 (Emmerson et al 2014). Our costings are in 2015/16 prices, and do not take into account the proposed increases to the national minimum wage that will take effect from April 2016, or revisions to the hourly rates paid to providers (which are currently under review); they therefore act as a minimum (static) estimate.
 
4. IPPR’s report ‘Childmind the gap: Reforming childcare to support mothers into work’ (2014) explores the factors behind maternal employment in the UK, and especially the pivotal role of affordable, accessible childcare in supporting mothers who want to work:http://www.ippr.org/publications/childmind-the-gap-reforming-childcare-to-support-mothers-into-work
 
5. IPPR’s Spending Review paper (August 2015) argued for an entitlement to 15 hours of holiday childcare for an additional 10 weeks of the year, targeted at 2–4-year-old children in families that fall within the poorest 40 per cent of the income distribution. This policy would support employment and provide much-needed help to low-income families, whose finances will be squeezed in this parliament by cuts to tax credits:http://www.ippr.org/publications/the-chancellors-choices
 
6. ‘Counting the Cost’ (2014) found that underfunding (of the existing offer) would lead some providers to become financially unstable if they did not increase fees for care outside the free entitlement, and thereby increasing the cost of childcare for parents: https://www.pre-school.org.uk/document/7905
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