Can UK childcare be fixed?
FT public policy reporter Bethan Staton on why childcare is rising fast up the agenda in Westminster and for businesses. UK parents pay more, struggle to find places for their children... and want employers and policymakers to help sort it out
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If you're a parent, or know one, you'll be well aware that childcare in the UK is too expensive. According to the OECD, UK nursery fees are the second highest in the world and take up one-third of the average wage. In some areas it's even higher. In London, a full-time nursery place costs £19,000 on average, according to charity Coram. And in responses to an FT reader survey last year, many parents said they were paying more than £2,200 monthly for nursery, more than their mortgage costs.
Childcare has moved from being a personal problem for parents to Westminster, not just because parents' votes count, but because, in a tight labour market, the effects are felt across the whole economy. In a 2021 survey, nearly half of mothers said they had taken on fewer hours because they struggled to get childcare. As one reader said in an FT survey last autumn: 'without the funding from the government it's impossible for people, usually women, to work.' The Centre for Progressive Policy, a think-tank, has estimated that if offered adequate childcare, women would increase their earnings by up to £10.9bn, generating more than £28bn for the economy.
So what can be done about the problem? Exasperated parents may be surprised to know that the government investment in childcare has actually increased in the past decade. According to the Institute for Fiscal Studies, total spending on childcare in 2010 was £2bn. Today, it's nearly £4bn. However, some experts say the real problem is how that money is spent.
Government funding for early years is a patchwork of free entitlements and rebates, which support a largely unplanned market of private providers, charities and schools. How parents and nurseries benefit from that funding is complicated. Most parents get a tax rebate worth 20 per cent on childcare and 15 to 30 hours of free childcare a week for 38 weeks a year when their child is three, depending on income and if they are working.
Parents of two-year-olds can also qualify for free hours if they meet certain criteria. If that sounds confusing, it's because it is. Studies show that parents struggle to access support that is available. And in 2022, some £3bn of tax-free childcare went unclaimed.
The system doesn't work for providers, either. Nurseries need to stay profitable, or at least financially sustainable, to keep providing childcare. But the state subsidy falls way short of allowing this. Research found that the government estimated it costs £7.50 per hour per child to provide a quality nursery education in 2021. But in that year it gave nurseries an average of only about £4.90 for each of the 15 to 30 free hours offered to parents.
Faced with this shortfall nurseries depend on parents paying beyond those free hours in order to stay afloat. That means charging higher prices to richer parents or parents of younger children, for more hours or so-called extras, like nappies or lunch, to cover costs not paid for by meagre government funding. However, nurseries are still struggling to make ends meet. About 400 have closed since 2020, and more have shut their doors in disadvantaged areas, where they're more dependent on the government subsidy.
So what action can working mothers expect from policymakers? The UK government has considered a range of options, including loosening regulations on childminders and increasing the number of children that can be looked after by one adult at nurseries. Policy analysts and lobby groups have called for more radical changes, including increasing funding per place and extending the free allowances to younger children. But that all costs money.
For parents squeezed by a cost of living crisis and high childcare fees, change can't come soon enough. Recent research found families were delaying or forgoing having children because of the extra costs. But with no decisions confirmed and the Treasury reining in public spending, they may be waiting some time. And it's women and the economic health of the country paying the price. As one woman commented in the FT survey: 'women will not be equals in the workplace until the economics of childcare are worked out.'