It’s time for some fresh thinking on childcare

Yet again the average cost of childcare has risen above inflation over the past year. Daycare Trust’s annual survey finds that the average cost of a 25-hour nursery place for a child under the age of two is £108.51 a week. Considering gross average earnings stand at £445 a week, childcare eats into a huge proportion of household income. Families across the income spectrum are struggling.

Those on the lowest incomes get 70% of their weekly childcare costs covered by the Government through the childcare element of the Working Tax Credit.  Still, the remaining 30% can be punishing: to pay for the average cost of a 25 hour place, for example, low-income parents would have to find £32.50 a week.

SMF analysis shows that the amount low-income families will have to pay from their own pocket is set to rise in the years ahead. In fact, a typical low-income family (with household income between £15,000-£37,000 a year) is set to pay £600 per year more in today’s prices by 2015 compared to the high-water mark of public support in 2006. This is because costs are expected to keep rising but state support through tax credits was reduced in 2010 from 80% to 70% of costs covered, and the amount available for basic-rate taxpayers through the tax exemption on employer-supported childcare vouchers has remained frozen at £55 per week since 2006-07.

And rising costs don’t just affect low income families. Those on middle-and high-incomes are exposed to the full ticket price, unless they get support through childcare vouchers. But the scheme is arbitrary as many employers simply don’t offer it. The free entitlement, providing 15 free hours of childcare per week, is available to all families: but this only kicks in when the child is three, and parents typically need more hours. Again, the pressure will worsen on these parents in the years ahead: our analysis shows that a typical middle-income family (annual household income of £42,000 – £63,000) is set to pay £900 more a year from their own pocket in today’s prices by 2015 compared to in 2006.

Polling of parents with children under five which was conducted by YouGov for our report A Better Beginning found little difference between social groups on the difficulty of paying for childcare. 45% of working class parents reported finding it difficult to pay; 44% of middle class parents found it difficult. With parties of all colours seeing the votes in family-friendly policies, and the lack of affordability of childcare affecting parents across the income spectrum, it’s not hard to see why politicians are increasingly getting exercised by the issue.

But despite promises in the Coalition’s Mid-Term review that the Government would announce further measures to help parents with costs, there have been no new policies to improve the affordability of childcare for parents. The impact of looser regulations around staff-to-child ratios – as announced by the Minister for Education and Childcare earlier this year – is unlikely to make a radical difference to the cost of provision.

Something must therefore be done for all families, since childcare is crucial for increasing parental employment and raising educational attainment. But how?  With the public finances in a mess and more cuts on the way, any increase in the government subsidy level will only be marginal. If the Government can’t afford to do much more to subsidise childcare right now, it can at least help parents to manage the burden. That’s why a radical solution is needed to the childcare conundrum that provides substantial support to all parents without adding to the deficit.

The SMF has a credible policy for these straitened times. All parents should be offered government-backed loans – with a low interest rate and repayment contingent on income – to help them spread the intense costs of childcare over a number of years. This would make childcare much more affordable for all working parents at no cost to the taxpayer. High-quality childcare is central to a number of important policy goals, tackling child poverty and boosting social mobility. We can’t afford to wait until the public finances are back on track, in two parliaments’ time to tackle the affordability crisis. It’s time for some fresh thinking.


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