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Ryan Bourne 2

Ryan Bourne is the Head of Public Policy at the Institute of Economic Affairs.

Aside from the much-expected arms race to win the pensioner vote with a host of taxpayer-funded goodies, all parties (bar maybe UKIP) seem to agree that ‘childcare’ is something deserving of lavish funds.

Indeed, such a consensus has developed about how we must support childcare (already subsidised to the tune of £7 billion and counting) that as a young, childless man I write this post with a sense of overbearing trepidation, for fear of both having missed something obvious or being told to ‘check my privilege’.

Over the last ten years, Labour has introduced ‘free’ care for 15 hours a week for all three and four year olds – since expanded by the Coalition to incorporate ‘disadvantaged’ two year olds. The state also funds extended after-hours school services, subsidised childcare in Sure Start Centres and has provided tax relief for various employer-based schemes. The childcare element within the working tax credit refunds up to 70 per cent of childcare costs, which can rise to 97 per cent with various disregards within other benefits. On top of many of these schemes, the coalition has introduced so-called ‘tax free childcare’ and pledged that Universal Credit will extend childcare support to parents working less than 16 hours per week.

Yet when the Family & Childcare Trust outlined last week that sending a two-year-old to nursery for 25 hours a week now costs more than £6,000 a year, the response from the politicians was as predictable as it was depressing. ‘Doing more’ was the phrase of the day.

We know that the Lib Dems have a long-term aim of essentially merging pre-school care into the education system. The Labour party has suggested extending ‘free’ childcare to 25 hours a week for parents with children aged three and four. Neither of them, nor the Conservatives it must be said, seem willing to ask two fundamental questions: What is the state trying to achieve with childcare policy? And why is childcare in the UK now so darn expensive?

The key problem seems to be that there are at least two justifications given for policy action on childcare. Some suggest government action is needed to improve the quality of childcare and lower social inequities – with an emphasis on almost making childcare a form of pre-primary education. Others believe that the state should help raise maternal employment by virtue of making childcare more affordable, with the aim of reducing child poverty.

It should be obvious that there are clear trade-offs between these objectives. A completely deregulated childcare market would likely offer low cost options – it would meet the affordability objective. Looking after someone else’s children need not be an expensive task, especially for those stay-at-home Mums and Dads who’ve already opted to care for their own children at home. One can imagine many informal and sharing arrangements springing up – with intermediate institutions such as agencies providing accreditation for childcare providers with certain characteristics or qualifications.

By contrast, a desire to formalise and regulate the market as if it were an extension of the education system imposes lots of costs in terms of becoming qualified and accredited, undertaking the relevant training, imposing staff-to-children ratios and running the nurseries and centres. Over the past 15 years, the government has increased regulation in all these areas. Prospective childminders now have to be registered and assessed by Ofsted, in a similar way to educational establishments – and have to incur the registration and training costs themselves. Those dealing with young children are required to undertake training for the Early Years Foundation Stage. The state has increasingly pushed people towards more formalised nursery settings, which tend to be more expensive.

We have therefore introduced measures which have sought to formalise and professionalise the sector, whilst overseeing a collapse in the number of childminders (from 103,000 in the mid-1990s to 53,000 today). The supply-side has been made less responsive at a time we are funnelling in more subsidies. Add to all this ongoing problem of raised property costs resulting from land-use planning laws, which affects businesses such as nurseries too, and it is easy to see how state action has pushed childcare costs up.

It’s thus difficult to have much sympathy when politicians turn on the crocodile tears about how ghastly it is that childcare is expensive. Some countries have heavily state-subsidised childcare and low ‘out-of-pocket’ prices; others the inverse. But the UK is extremely unusual in that our policies have led to both high out-of-pocket costs and high levels of state subsidy. Rather than addressing or questioning this, the political argument seems to be about what the balance of bearing this cost should be between family and taxpayer.

Pursuing two different aims has led to neither being achieved. On top of childcare being expensive, there is little to no evidence that maternal employment levels have increased any more substantially than the secular trend. What there is substantial evidence of, though, is survey data suggesting more parents, and women in particular, would prefer to look after their own children but feel that current policy works against them.

A more classic case of the state crowding out family and civil society through regulation and subsidy is difficult to find. Not only is the government weakening the personal responsibility aspect of having and bringing up children, but it’s deciding in a paternalistic way what used to be within the domain of parents, i.e. what parents want from a child carer.

It would be my personal preference to completely overhaul childcare policy according to the principle of parental choice. This would scrap the range of demand-side subsidies we currently see (and which have only been introduced in the past decade), but recognise the costs of bringing up children in the tax system through transferable child allowances.

There may also be a case for limited support for those on very low incomes operating through the tax credit system – particularly those with low levels of labour market attachment receiving welfare with work requirements. But the vast bulk of regulations on providers we currently see could be scrapped – allowing parents, rather than the state, to decide what they are looking for from someone looking after their children.

Instead of a clear vision one way or the other (particularly from Conservatives) about what childcare policy is for though, it looks for the time being as if the muddle will continue. It seems likely that both Labour and the Lib Dems are essentially moving towards a policy of nationalising pre-school care – with high levels of regulation and taxpayer funding. It’s unclear as yet whether there is there anyone willing to stand up for a family-centred, rather than state-centred approach.

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