The Social Market Foundation’s new report 'The Parent Trap', published yesterday, illustrates worrying growth in the private contribution parents are likely to have to make to afford childcare by 2016.
Already too many families report that they cannot afford the cost of childcare. Our analysis shows that, in the future, childcare will become more unaffordable for families with the lowest incomes in particular, who will have to find £600 more from their own pocket for childcare in 2016 compared to a decade earlier.
This is worrying. Affordable childcare allows parents to stay in work, which leads to higher earnings and makes them less likely to fall into poverty. In addition, childcare - as the EPPE study has shown - increases the cognitive development of children, especially the most deprived. In fact, Professor Heckman’s research shows that it is the most critical stage of the education system. It is absurd that – unlike every other part of the education system – formal childcare is out of reach for some.
Yes, public support for childcare is much better than in the past. Back in 1980, the eminent psychologist Jerome Bruner lamented, 'The provision of childcare in Britain since the war is a curious counterpoint of unfulfilled official declarations of intent and voluntary response filling gaps left by inaction.'
Today, the OECD applauds Britain as 'one of the biggest investors' in childcare. But, still, the average private contribution for the cost of childcare remains the highest in the EU.
In 'The Parent Trap' we quantify the growing private contributions parents make by calculating the remainder to pay after the maximum possible public support for costs – available through tax credits and tax and National Insurance (NI) exemption on employer-supported childcare vouchers – is taken away from the typical ticket price for childcare in each year.
The future ticket price of childcare is assumed to grow at the average rate of increase observed in the past five years. The reasons for the continued rise of childcare costs continue are complex. They include the introduction and raising of the minimum wage, demands for better staff qualifications and a focus on attracting children lower down the age range, who require more stringent child-staff ratios.
In the analysis we look at the private contributions for three income groups. The first group, low-income families who are entitled to tax credits, are expected to pay 62% more from their own resources in 2015-16 compared to in 2006-07 for a typical amount of childcare. This is predominantly caused by the reduction in support through the tax credit system, from 80% to 70% of childcare costs, which was implemented earlier this year.
The second group, middle-income families who are only eligible for vouchers, can expect to pay 25% - or around £900 - more in 2015-16 compared to nine years earlier. This is because the value of the employer-supported childcare voucher has remained frozen as childcare prices have generally risen above inflation.
And the final group, high-income families with a higher-rate taxpayer, look set to pay 42% - or £1,400 – more in 2015-16 compared to 2006-07. This is because they can only claim tax and NI exemption on a £28 voucher, rather than a £55 voucher.
Restoring the purchasing power of tax credits and vouchers would cost the Exchequer around £400m and £300m per year respectively. Finding this money will be difficult in the current fiscal environment.
A more credible alternative would be for government to help parents smooth the costs of these growing private contributions over a longer period of time, by allowing them to pay for the costs of childcare through the tax system over a number of years. The SMF will set out how this could be done in a report scheduled for the New Year.
Childcare is a rarity in public policy, offering both equitable and efficient outcomes. In other words, it doesn’t just help people better meet the cost of living, but can actually provide more revenue to government in the short- and long-term by increasing employment and educational levels. That’s why Government needs to urgently find ways to support parents afford childcare.
