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The Parent Trap: Cost of childcare

Tom Sasse

Tom Sasse

7 min read

The government and the opposition have both promised to address chronically expensive childcare. Do their plans add up? Tom Sasse reports

“It would be better for her, and me, if she could be with other children now,” says Lucie, whose daughter Luna is 11 months old. Lucie lives in Penistone, a small town about 40 minutes’ drive from Sheffield. Lucie quit her job as a café supervisor to look after Luna but wants to get back to work, where she “thrives”. Unfortunately, the sums don’t add up. 

Local nurseries charge £70 per day. Lucie doesn’t drive, so getting to work would require a train and a bus. Her partner’s salary just covers the bills. Even with a second income, putting Luna into nursery could push them over the edge, financially.

You have to be creative to avoid going bankrupt

Lucie is not unusual; many parents in Britain find childcare increasingly unaffordable. Mothers in particular often find themselves forced to stay at home longer than they would want. Politicians appear to be listening. In March the government announced the biggest package of childcare reforms in a generation. Labour is pondering a big offer in time for the election. Yet neither has recognised just how broken the system has become. 

Debilitatingly expensive
The average cost of full-time care for one child is £930 per month, almost a quarter of an average couple’s earnings. For single parents, or families with several children, the proportion can be even higher. After housing, unaffordable childcare explains much about why many parents in Britain feel disaffected. Last October, a March of the Mummies was organised in 11 cities across the UK. Pollsters fret about angry parents, but expensive childcare is not only a problem for parents. It reduces labour supply, undermining ambitions to tackle sluggish growth. It interrupts career progression which can have a long-term impact on workforce participation and helps to embed the gender pay gap. Children miss out on interaction and learning, which lots of evidence shows is critical to early attainment.

Childcare costs are highest in dense cities; a typical nursery place in London costs £1,700 per month. But childcare is difficult to access and afford almost everywhere, including where salaries are much lower. “Deprived and rural areas are where we see some of the biggest problems,” says Neil Leitch, chief executive of the Early Years Alliance.

Why do British parents currently pay almost twice as much for childcare as those in France and Canada, and four times as much as those in Germany? Part of the answer is that other countries pay more in tax to fund more generous subsidies. UK government spending has increased steadily to around £4bn per year but remains well below that elsewhere.

Childcare is also more expensive to provide in Britain. Staffing makes up three-quarters of costs, and the current ratio of carers to children for one and two-year-olds in England (1:4) is tighter than almost anywhere in Europe. 

Cash-strapped councils have upped business rates, while nurseries face high rents and other bills. “I nervously watch our children at the tap,” says Nicky Edwards, who runs four nurseries in Gloucestershire.

Many parents welcomed the government’s decision in March to extend support for younger children. Yet few who work in or study the sector think it has grasped the scale of the problems. 

A broken market 
“We can’t compete with Aldi,” says Karen Simpkin, who runs Sunflowers Children’s Centre in Sheffield. Simpkin employs 22 staff, who care for around 120 children (ratios are more relaxed for older children). She finds staff increasingly difficult to retain because they can easily find better-paid work. Operating the checkouts at nearby Aldi pays £11.90 per hour, with more flexibility and fewer screaming children.

One sign the market is broken is that more providers are folding, despite demand for childcare increasing, after a pandemic lull. In the year to March 2022, the number of nurseries in England fell by more than 4,000 – that’s over five per cent. 

“I’ve got a two-year waiting list, but I can’t pay enough to keep staff,” says Edwards. High turnover leaves nurseries reliant on expensive agency staff.

Why is the system so dysfunctional? The obvious problem is that government insists on offering parents an entitlement of free hours while paying nurseries much less than it costs to provide them. The rate varies but the gap is large, forcing nurseries to make up losses by charging more for non-funded hours (currently, for one and two-year-olds), lunches or other add-ons. “You have to be creative to avoid going bankrupt,” as Edwards puts it. The result is an opaque and volatile sector that suits no one.

The deeper problem is that 25 years of interventions have left an incoherent policy landscape. New Labour’s aim was to boost learning and attainment among disadvantaged children via targeted entitlements, support through the tax and benefits system, and Sure Start centres. 
Since 2010, governments have kept some of those policies but focused much more on increasing workforce participation by expanding the offer of free childcare to 30 hours a week, available to everyone so long as both parents are in work.

The result is a confusing system that achieves neither aim well. Peers that focus on child development, such as Norway, or workforce participation, such as Canada, tend to do better at their chosen priority, says Christine Farquharson of the Institute for Fiscal Studies (IFS). 
Childcare in Britain remains too expensive and inflexible for many parents to get back into work. But it is not boosting child development for those who most need it, either. 

To many parents the system is simply baffling – “complicated, costly and constantly changing” as Farquharson puts it – one reason why the support available is not always taken up. 

Bold plans
This is the mess that Jeremy Hunt tried to fix in his March Budget. He surprised many with the boldness of his plan to extend the 30 free hours to one and two-year olds – a landmark in UK welfare policy which means for the first time state support will cover all childhood. Those planning to have children after January 2024, who stand to benefit, can (at the right time) celebrate. 

Hunt also made changes to universal credit to allow upfront payments to cover childcare, and announced a consultation on relaxing ratios. 

There is a hole, though. The Treasury promised an extra £4bn from 2027-8; a significant expansion but less than most experts think will be needed to fund the new commitment. By extending the free entitlement to one and two-year-olds, Hunt will also close off nurseries’ current lifeline of subsidising existing (under-)funded hours. 

This means there is a serious risk his reforms will be undeliverable. The IFS estimates that the government will be purchasing around 80 per cent of the childcare market, making its role as rate-setter critical to nurseries’ survival (its record is measly). 

“The main feeling is uncertainty,” says Jonathan Broadberry of the National Day Nurseries Association. Set the rate too low, and the market could fragment with some providers closing or opting out of free hours. 

Labour appeared to be caught off guard by Hunt’s plan. In a recent speech, shadow education secretary Bridget Phillipson called childcare and family “the politics of the electoral battle ahead”. She developed a strong critique of the current system (“rigid, inflexible, inadequate” and “not a market, but a mess”) and warned that “adding more free hours could see the Conservatives crash the childcare market, just like they crashed the economy”. 

But despite making vague noises about an ambitious childcare policy for over a year, it had not announced anything of substance before Hunt’s intervention. In June, the party appeared to row back on the idea of a “universal childcare offer”, in favour of some form of means-tested support. 

That both parties are fighting for the votes of angry parents is a remarkable change, even from 12 months ago. But developing the right policies and funding model to tackle the mess the sector is in is likely to take years. 

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