Childcare reforms could boost UK economy by £13bn a year, report finds

The think-tank IPPR and the charity Save the Children have set out and costed the reforms needed to provide affordable childcare for all families.

Childcare

 

A ‘universal guarantee’ to provide affordable childcare for all families could boost the UK’s economy by £13bn a year, according to a new report by the think-tank IPPR and the charity Save the Children.

The report sets out and costs the changes needed to deliver affordable and accessible childcare, from the end of parental leave until a child finishes primary school at the age of 11. The report finds that parents’ earnings could rise by £13bn a year, as they would be able to work more. The government could also recoup £8bn a year from increased tax revenues, increased national insurance revenues, and lower social security payments. 

Childcare reform would also have social and educational benefits, the report’s authors said. Many academic studies have shown that, for pre-school children, good early-years education can boost social and educational skills. Childcare is also central to tackling the UK’s gender pay gap, as it affects mothers’ careers in particular.

“A universal and affordable childcare guarantee from ages 0 to 11 would deliver a step-change for millions of young children and their families,” Rachel Statham, IPPR associate director and lead author of the report, said in a statement.

The report sets out step-by-step reforms for the government to provide more investment in nurseries, childminders, and other childcare providers. These reforms include expanding the free childcare hours available for pre-school children, although the report does not suggest providing totally free full-time places – this would be highly unusual as parents in almost all countries pay some fees for pre-school childcare. The report also proposes free “wraparound” care from 8am-6pm for school-age children, plus more support with childcare costs for low-income families.

The government’s investments should be introduced in stages and would eventually cost £17.8bn a year, the report said. This would be partially offset by the £8bn generated by parents working more, plus £2.1bn in savings from closing existing schemes that would no longer be needed, and other tax changes could cover the remainder. Costs are also likely to fall over the next decade as primary school pupil numbers are expected to decline.

“Confusing and extremely expensive for parents”

The UK’s high childcare fees have been in the spotlight this year, as the cost-of-living crisis puts a huge strain on households. UK families pay some of the highest childcare fees in the world, and these costs are likely to go up further next year as nurseries and childminders try to cover rising energy bills. 

The UK government spends less on childcare than many other developed countries, according to OECD data, leaving parents to make up the gap. Families with pre-school children pay fees that commonly exceed £1,000 per month for a full-time place, according to the children’s charity Coram. Families with school-age children often still have to pay for “wraparound” care before and after school, in order to cover their working hours. The government offers families a complex set of subsidies, but monthly fees often still run to hundreds of pounds even for a part-time nursery place. 

“The early years system is broken. It’s confusing and extremely expensive for parents. Most staff are paid at minimum-wage levels. And the best provision is targeted at children from the wealthiest areas. Increasingly nurseries are run by private equity firms.” Sam Freedman, senior fellow at the Institute for Government and a co-author of the report, said in a statement.

“A universal childcare guarantee would be a huge help to families, but it would need to be accompanied by an overhaul of the market to ensure the funding went on better-quality provision and higher wages rather than private equity profits.”

The report’s economic projections work on the basis that, if all families had access to affordable childcare, the rate of full-time employment among existing working mothers of younger children would rise. The projections also assume that the overall employment rate of mothers of younger children would equal that of mothers of older children.

It is not known exactly how many mothers would increase their paid work, and by how much, if childcare were more easily available. But several studies have shown that it is a major employment barrier – around 1.7m women in the UK cannot work as many hours as they want due to childcare issues, according to a 2021 report by the Centre for Progressive Policy.



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