Starting this September, working parents will be able to claim up to 30 hours worth of ‘free’ childcare. This is estimated to affect 600,000 families to the tune of roughly £5,000 per year. However, despite the Government’s generous giveaway packages, childcare remains one of the biggest expenses for UK households, akin to other topical necessities, like housing.
To send a child under the age of two to nursery, just part-time, costs families an average of £6,000 per year; for middle-income earners, coming up with the additional funding is going to be a stretch, not to mention the burden those costs have on low-income families, or single parents. Now factor in full-time childcare costs (roughly £11,000 a year, or a staggering £14,750 in London), or the cost of having multiple kids in childcare; the costs become nearly impossible to match, and families are forced to make concessions.
And those concessions have consequences. For one thing, some families find that the cost of childcare is too high to justify having both parents back at work. For many families, the second income just manages to cover the childcare payments. In some cases, childcare costs actually exceed the net income brought home by the second earner. These high costs disproportionately affect women, as more than twice as many women, at 29%, than men (14%) have found that returning to work after having a child isn’t financially worthwhile.
Many women, who want to work, are forced to stay at home until their children enter full-time education, diminishing their potential earnings when they return to work. The gender pay gap – a hot topic of discussion in the UK – is not a gap between men and women per se, but rather a gap between mothers and non-mothers; the latter usually earning as much, if not more, than their male colleagues while the former sees a drop in their income.
Childcare payments have also been a driving factor in the tax credits debate. While the government is right to make good on its mandate to reform the welfare system, many working families are dependent on tax credits to provide daytime care for their kids. Though the threshold to receive child tax credits may seem relatively high – paid out to couples earning collectively up to £41,000 a year – the cost of childcare is also so high that it can cut a couple’s income down by thousands of pounds a year.
No one disputes that childcare costs remain a burden to families. At every income level, parents are getting priced out of the kind of childcare they want. The real debate is how to lower the cost of provisions while still maintaining high standards of care in the sector.
But if the UK is to reform childcare provisions to make them affordable for families, political leaders will need to swallow a tough pill: despite good intentions, it is government subsidies that are perpetuating the distorted and expensive childcare market.
Even in the past year, the cost of putting a child under the age of two into childcare part-time has risen by 5.1% – above the rate of inflation. Come 2016, the increased childcare benefits on offer will continue to exacerbate the problem and drive prices up even higher.
The only way to tackle these costs is for the Government to cut off the vicious cycle of funding that keeps this bloated industry afloat and take on expensive regulations that remain some of the harshest in Europe. Ofsted’s childcare regulations are especially stringent, including strict mandatory child-to-staff ratios. In the UK, child to child-minder ratios are 1:3 for children aged 1 or younger, 1:4 for children aged 2–3, and 1:8 for children aged 3+.
In contrast, countries like Denmark and Germany have no mandatory ratios for children to child-minders (at any age), yet manage to keep the quality of childcare at a safe and acceptable level. This allows nurseries to keep staffing costs relatively low, which in turn results in cheaper childcare costs for families.
Just like housing, the government continues to throw money at problematic sectors instead of reforming the regulations that keep costs high. Not only does this waste money, but it reinforces the cost of living crisis that keeps so many people, who could otherwise be self sufficient, dependent on government benefits and handouts. It is within government’s power to deregulate childcare to the point of affordability; but under current policies, 2016 will usher in even higher costs and even higher burdens.
Kate Andrews is News Editor at the Institute for Economic Affairs. She originally wrote this piece for Bright Blue's Centre Write magazine on the future of work.