Going Dutch? - The dangers of deregulation

It is good to see Elizabeth Truss MP arguing strongly for childcare policy changes to promote mothers’ employment and making the case for the importance of childminding.

Working mothers play a huge role in boosting economic success. As well as providing the UK economy with the widest possible access to skills and talent – critical in today’s globalised, competitive world – the employment of working mothers is crucial for the living standards of families. As the Resolution Foundation has demonstrated, one of the main influences in living standards in the last 40 years has been the rise of female employment.

However, we are concerned that Truss’s proposed solutions, particularly in relation to deregulation, will damage the status of childminders and the quality of services they provide, and have a negative impact on families.

Truss has written that one of the major causes of the massive childcare inflation in Britain over the last decade has been the squeezing out of childminders. Yet providers we have spoken to refer to rocketing business rates, VAT, and reduced parental demand for places as the main causes of increased costs – and not the reduction in childminder numbers (which have in fact now stabilised).

Childminders offer an important, professional service – and should not be seen as second class to nurseries. We hear from high quality childminders that they cannot cope with more than three children under the age of five and give them the individual attention they need. Childminders are already seen as the least trusted part of the childcare sector, and parents look to regulation to assure them of the quality of the service provided. We worry that deregulation would run the risk of parents using fewer childminders, rather than more.

Dutch experience

Much is being made of the supposed success of the Dutch experience in relation to deregulation. The Netherlands should in fact be seen as a case study about the pitfalls associated with childcare deregulation – and the policy of deregulation there is in the process of being torn up.

In 2005, the Netherlands introduced legislation - the 2005 Dutch Childcare Act (Wet op de Kinderopvang 2005) specifically aimed at encouraging childcare marketisation. This Act radically changed the way the system was funded. Aiming to encourage mothers’ employment by securing sufficient good-quality childcare, it replaced a supply-side funding system, operated by local government, with a demand-led childcare market. The Act also proposed to deregulate childcare almost completely beyond a requirement on childcare business operators "to provide responsible childcare."

After lobbying by a consortium of providers, practitioner unions and  the national parent representative organisation anxious about a threat to quality of increased competition, the Government agreed to a system of self-regulation by means of an annually renewable national ‘covenant’ between these partners, and oversight of each group setting by a parent committee.

Under the Act’s ‘tripartite’ method of funding childcare, costs are shared between central government, employers and parents. Until recently, parents received two-thirds of their total registered childcare costs via income-related childcare tax credits and employer childcare contributions, compulsory since 2007.

In the course of four years the number of children using registered childcare had doubled and the Dutch government’s costs had tripled. By late 2009 it had already become clear that a 200% increase in registered childminders was largely responsible for this situation, coupled with a 68% increase among businesses brokering childminding provision – agencies helping parents find a childminder. Most of these childminders were actually grandparents registering to become formal carers for their own grandchildren, rather than an influx of new childminders incentivized by deregulation to join the profession.

In response, the Dutch tax authorities and its Benefits Agency launched an investigation into possible fraudulent use of the childcare tax credit system mostly in relation to relative-based care and subsequently introduced amendments to the 2005 Childcare Act.

More stringent childminding quality criteria were introduced, childminding grandparents had to be prepared to care for other children than just their own grandchildren and during regular business hours, and the role of childminding brokerage agencies was significantly curtailed. Childcare tax credit contributions were frozen and were reduced for childminding compared to other types of childcare provision.  In 2012 all childcare tax credit contributions have been lowered further and in dual earner families credits can only be claimed by the parent who works the fewest hours.

But that is not all. Since 2005 a rigorous review of centre-based childcare quality carried out every two years has indicated a steady deterioration in childcare quality in the Netherlands, partly driven by this policy of deregulation.

In view of this evidence, the Dutch government has now also decided on the reversal of its earlier deregulation policy. Current childcare policy guidance is being converted into a set of enforceable regulations, with a view to protecting children’s well-being and longer-term outcomes. The relevant legislation will be passed in April 2012.

As well as the Netherlands, supportive comments made by Truss in relation to flexible childminding regulation in Germany also need to be put into context. While 2006 German childcare legislation does indeed allow unregulated childminders to provide care for up to 15 hours weekly against payment, this can only be for a maximum period of 3 months. This allows for situations such as where friends help out temporarily in the case of a mother’s illness – and is not therefore an example of childcare deregulation.

The Dutch seven-year experiment with childcare deregulation is indeed instructive, but let’s ensure we draw the right lessons. The net effect of deregulation was to increase the amount spent by government on childcare, as well as bring about a marked reduction in quality. Hence a centre-right government (in the Netherlands) is now impelled to introduce regulations to protect children’s well-being and longer-term outcomes.  

As Truss concludes, 'Helping parents to get into work and particularly enabling mothers to maintain skills will have a positive impact on both families and the country’s finances.'

However, as we have seen since April 2011, cuts to the childcare element of the working tax credit are having the opposite effect. To really support working families, the government needs to reverse its childcare tax credit cuts, encourage employers to provide part-time jobs and support flexible working, and provide affordable childcare and extended services which will enable parents to balance their work and family commitments.

The government should also consider how other European Governments regulate to cap childcare fees in order to reduce the maximum proportion of household income that parents spend on childcare. This should be the direction of government travel, rather than looking at deregulation – which as the failed seven-year Dutch experiment with childcare deregulation has shown, simply ends up by reducing the quality of provision and the status of childminders.

Eva Lloyd is Reader in Early Childhood at the University of East London and Co-director of the International Centre for the Study of the Mixed Economy of Childcare

Anand Shukla is Chief Executive of Daycare Trust