Lack of suitable childcare means UK losing 1% of GDP in economic output

6 March 2023

A new report from economics thinktank the Centre for Progressive Policy (CPP) lays bare the economics costs of the lack of accessible, affordable childcare in the UK, as pressure grows for action on childcare costs in the Budget. CPP is calling on the government to recognise childcare as infrastructure in national spending frameworks, so that it can borrow to invest in provision.

The report, Growing pains: the economic costs of a failing childcare system, includes the results of a survey of 2,545 mothers with at least one child aged 10 or under. The survey focused exclusively on women as their participation in the labour market is disproportionately likely to be affected by the availability of childcare. Its key findings:

A lack of affordable, accessible childcare is costing the economy billions in lost earnings and holding back much-needed labour supply

  • Over half of the mums surveyed (54%, equivalent to around three million mums) said they had struggled to find suitable childcare since becoming a parent.
  • 27% of those surveyed– equivalent to around 1.5 million mums – said they would like to work more hours if they had access to suitable childcare. If these desired hours were realised, it would result in at least £9.4bn in additional earnings per year, producing additional economic output of between £27bn and £38bn per year, or approximately 1% of UK GDP.
  • Based on survey results, CPP estimates that 540,000 mums have been prevented from entering paid work due to a lack of suitable childcare; 880,000 have reduced their hours at work, and 470,000 have quit their jobs.

A lack of suitable childcare is damaging women’s careers and curbing opportunities to earn during a cost-of-living crisis

Based on survey data, CPP estimates that, due to a lack of suitable childcare:

  • Almost a million mothers (970,000) have been prevented from taking a job with a higher salary, with an average foregone annual salary increase of £12,000
  • Around one million mums have been prevented from applying for a different job
  • 910,000 said their opportunities for job progression and promotion were impacted

The government is focusing on work as a key route out of the cost-of-living crisis and is seeking to attract more people (back) into work. But a lack of accessible, affordable childcare is driving women out of the workplace, as well as holding back their potential to progress in their careers, earn higher salaries and gain more skills.

Mums want childcare reform, but not through abolishing staff-to-child ratios

  • 64% of the mums surveyed said a lower hourly cost would encourage them to use more childcare.
  • 69% want the government to support working parents by extending childcare into the school holidays
  • 82% think that either staff-to-child ratios should stay as they are or that there should be fewer children per childcare worker

Among reform options to support working parents, the three most prioritised options were more financial support for parents of children aged 0-2; an extension of childcare into the school holidays; and more before- and after-school clubs.

Removing staff ratios in childcare settings to minimise costs, a proposal put forward by the short-lived Truss government, was overwhelmingly rejected. The majority of mums surveyed (59%) think that local councils should be the primary providers of childcare, although they only currently make up 5% of group-based childcare providers, suggesting an increase in this type of provision should be explored further.

Getting the ‘economically inactive’ back to work to fill record numbers of vacancies is a priority for the government, yet the high cost of childcare in the UK is preventing many women from participating in the labour market at all, or from progressing in their careers and increasing their earnings. The government spends the joint lowest level on childcare compared to other developed countries and the current system is prohibitively expensive for many parents, as there is no free or subsidised childcare for most children aged 0-2. It also leaves many providers under considerable financial pressure and struggling to recruit and retain staff, because government funding for ‘free’ childcare places for those aged 3-4 does not cover the cost of providing the care.

CPP is calling on the government to recognise childcare as infrastructure in national spending frameworks, so that governments can borrow to invest in it. Spending on childcare is akin to physical infrastructure like rail and roads, helping to drive output and productivity gains in the short, medium and long term.

Rosie Fodgen, Head of Research & Analysis at CPP said:

“The high cost of childcare is holding back our economy. Parents want to work more, but to do so they need more wraparound care and lower hourly costs without compromising on quality. Without it, many are left with no option but to forgo promotion, reduce their hours or stop work entirely at a time when the number of people struggling to meet the basic cost of living across the country is rising.

“Childcare is infrastructure: it allows people to go to work, to access better skills and earnings, and to contribute to the economy. Treating it as such would allow borrowing for investment, just like for other forms of infrastructure like rail. We will not transform our piecemeal childcare system overnight, but any credible strategy for growth and labour market participation must recognise and act on the clear economic gains of investing in childcare.”

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Estimates of lost earnings and economic output have been calculated according to the following method: 1) using survey responses to estimate the number of additional hours mums would like to work per year 2) splitting these out by sector 3) scaling this to the wider UK population of working mums and 4) applying hourly ONS GVA and earnings data. A small number of big outliers were removed from estimates of the earnings foregone because mums could not apply for or take a new job.