Reigniting childcare as a critical political and economic issue

18 January 2024

By Ben Franklin

5 minute read

This week, the London Assembly published its report on early years revealing how childcare costs in the capital are a quarter more expensive than in Great Britain as a whole. As we noted in our evidence to the committee, greater costs have meant a greater proportion of mums struggling to access childcare in London than other regions. The Assembly’s report follows months in which childcare has fallen down the list of political issues at the forefront of debates ahead of the next election. Hunt’s sweeping reforms in the 2023 Spring Statement were designed to do just this – take the wind out of the Labour Party’s sails by extending the “free childcare” offer to working parents with children aged nine months to two years.

While overtly political, Hunt’s reforms were a step in the right direction – providing more financial support for parents to help them access childcare. Our own research has shown that affordability and access to childcare is a key economic issue – preventing parents across the income distribution from working the hours they want to work – to the detriment of the wider economy. It also prevents people – and in particular mums - from entering the workplace altogether. Our research found over half a million mums were prevented from even entering paid employment because of a lack of access to childcare.

More broadly, our research has shown that closing the gender employment gap can be good for productivity – boosting the amount produced by the existing workforce. In other words, through better access to childcare, it might be possible to both increase labour supply and - assuming it helps to reduce gender inequalities in the labour force - the economic output of that labour. Reducing the gender employment gap also depends upon a myriad of other factors, including reforming the UK’s pitiful approach to paternity or non-birthing parent rights, flexible working practices amongst employers and broader entrenched social norms. But accessible and affordable childcare is an important part of this story.

So, have Hunt’s reforms allowed us to reap an early years economic dividend? Is it right that the political debate should quieten down in the face of around £4bn extra per year in government funding?

No - there is much to be done to ensure the reforms deliver their promised economic gains. First, by failing to properly fund the providers of the existing “free childcare” entitlement for three and four year olds, providers continue to experience financial strain in meeting demand. Adding further demand onto the system through more “free childcare” will make some childcare businesses unviable. We’re already seeing this with childminders – whose numbers fell by 10% between 2022 and 2023. Arguably though, this is a problem that can be easily solved by paying the childcare sector a rate that actually reflects the costs of delivering care – something we have continued to argue since launching our Women in the Labour Force programme in 2021.

Second, the reforms offer little for low income households – continuing a trend whereby government support for childcare costs is conditional on the parents working. As the New Economics Foundation has shown, very few poorer households will be able to access the thirty hours per week of free childcare by comparison to the majority of those with median incomes or above. This is likely to be compounded by the fact that there are fewer childcare places per child in the poorer parts of the country. This is very short sighted economically, since a lack of childcare support reduces parents’ ability to find work in the first place. That’s why in our recent report - Funding Fair Growth - we recommend expanding the free offer to low income parents who don’t meet current work requirements, including those on universal credit. Altogether our reforms would inject an additional £4bn per annum into the sector, we estimate poor childcare accessibility costs the UK economy around £27bn a year just through reduced labour supply, so it would be a price worth paying.

But alongside advocating for improvements in national childcare policy, we are also working on local and regional delivery. Through our Inclusive Growth Network (IGN) we are working with Liverpool City Region to support their adoption of a whole place approach to recruitment, retention and workforce development in the early years and childcare sector. This will help to meet the increased demand whilst recognising the value of what the sector offers to children and their families. Learnings from this work will help support other places develop their own approaches to improving the access and quality of childcare in their areas and can feed back into improvements in national policy too.

The national political debates may have died down but the economic imperative to get childcare policy right has not. Hunt’s reforms may have dampened the morale of other political parties to put out a bold offer ahead of the general election, but there remains much to be done if we are to see a thriving sector that works for all parents and their children. The economic and political rewards could be substantial.