There’s no such thing as a free lunch — or free childcare

There’s no such thing as a free lunch — or free childcare. This week saw the launch of the long-awaited government scheme offering 30 hours of “free” childcare per week — but there are many caveats.

The rules are complex, and so is the online registration process. But what the new scheme essentially claims to offer is an additional 15 “free” hours of childcare for three- and four-year-old children of working parents on top of the current universal 15 hours (adding up to 30 hours per week in total).

This particular scheme only applies to England. Both parents have to be in work to claim (and they can earn up to £100,000 each — meaning a family with a joint income just shy of £200,000 would be entitled to 30 “free” hours, just as a family with two people earning the minimum wage would be). And those free hours are only on offer for 38 weeks of the year (leaving out traditional school holidays).

But it turns out that “free” means different things to different people.

To most ordinary parents (including me) “free” means seeing the billable hours on the invoice from my childcare provider reduced by 15 hours per week from September. But for those providers — typically nurseries but also childminders — those “free” hours can only be provided if they can raise a hefty subsidy to close the funding gap.

Hour for hour, pound for pound, the rate childcare providers receive from the government (via local authorities) is not usually enough to match the cost of providing childcare.

Karen Simpkin, who runs a nursery in Sheffield, says it costs her £7.50 per hour to look after a child — yet she will only receive £4.07 from the government. Therefore, she told the BBC, she will only offer a limited number of “free” places.

The government often cites an average funding rate of £4.94 per hour in relation to the 30 free hours. However, this is just the average funding rate given to local councils, not childcare providers. Some providers receive less than £3.60 per hour, according to the Pre-School Learning Alliance.

And it turns out that even the government does not really expect the hours to be ”free”, despite marketing them as such. The scheme’s operational guidelines say parents can “expect to pay for any meals offered by the provider alongside their free entitlement” (so bang goes the free lunch). Parents “can also expect to pay for other consumables or additional activities such as nappies or trips”.

The guidance adds, however, that these have to be offered as optional choices and that it is between the parent and the childcare provider to decide how this is managed. But with more than 100 local authorities across the country (and each of these running the funding scheme slightly differently), it is difficult to see how this will be monitored.

One childcare provider I spoke to said the only way she could afford to continue running her business and offer the 30 “free” hours was to ask parents to pay for “additional services”. She is having to ask for a voluntary payment to fund this and feels that she is, in effect, running her business on “donations” from parents.

I encountered countless stories just like hers on the social media group “Champagne Nurseries on Lemonade Funding” — a Facebook group where childcare providers discuss the new scheme.

Many nurseries say they will (begrudgingly) have to add extra monthly charges on to the bills of parents who receive the 30 “free” hours. As these charges are voluntary, parents do not have to pay them. I suspect many will not want to.

Childcare in England is among the most expensive in the world. Many working parents have already seen their child benefit removed (at least that system is tapered according to income). But if large numbers opt out, the nursery’s finances are not going to stack up. And if lots of nurseries are forced to close, who will be left holding the baby?

Childcare providers I spoke to feel they are stuck between a rock and a hard place. They cannot afford to offer the free hours, but have lost children to local school nurseries which are able to do so. Cost cutting seems inevitable. Managers may be tempted to cut staff costs by hiring cheaper, less experienced and less qualified workers.

This cannot be a good thing — but some companies are hoping it will be good for business. I received an email this week from a mortgage provider, clucking about how the “free” hours would enable parents to free up extra cash and take out bigger home loans. Really!

Childcare providers don’t have access to parents’ salary data, so will have no way of telling those who “can’t pay” from those who “won’t pay”. If you plead poverty, yet go and pick up your children from nursery wearing a sharp suit, expect to get some funny looks.

Joking aside, I expect the “free” hours policy will come at a huge cost to nursery care in this country. Parents, politicians and employers should all be concerned about the consequences. Many nurseries are already run on a shoe string, and margins are tight. Why should reputable businesses have to ask for donations to make up the shortfall from a hastily implemented policy?

What should have been a positive policy to help parents return to work has become a confusing and misleading initiative. As Purnima Tanuku OBE, chief executive of the National Day Nurseries Association, said this week, it must be acknowledged that there is a funding shortfall to pay for this childcare, which is “not free and never has been”. She says the 30 hours should be rebranded as “subsidised, not free” — and I agree.

I also think the salary threshold needs a rethink. If this was £100,000 per family, not £100,000 per person, the savings could be used to to adequately fund the cost of providing care for those who most need it.

Lucy Warwick-Ching is FT Money’s digital and communities editor. Email: lucy.warwick-ching@ft.com; Twitter: @WarwickChing