Today, the Social Market Foundation launches an innovative idea to help parents better afford the high cost of childcare. We’re proposing a National Childcare Contribution Scheme (NCCS) which will enable parents to spread their childcare costs over a longer period of time. Parents who opt into the scheme would be given financial support from government for their childcare costs, which they would then pay back through a small contribution from the main earner’s salary each month.
Childcare costs put an intense squeeze on families’ incomes for a relatively short period of time. Those high costs can mean that it’s simply not viable for parents to go to work. A quarter of parents in severe poverty report that, following the cut in the childcare element of the Working Tax Credit in April 2011, they have left work because the cost of childcare is too high. Polling by YouGov for this report found that 55 per cent of parents with children under the age of five think childcare is too expensive.
What’s more, the problem is getting worse. In SMF’s previous report, The Parent Trap, we found that low-income families are likely to pay 62 per cent more in today’s money from their own pocket in 2015-16 compared to 2006-07 because of a combination of reduced public support and rising prices.
So what should be done? Those of us who are passionate about formal childcare – who know its incredible value to parental employment and children’s development – could keep asking for more money from government. However, since public money is tight and government has to finance a whole array of other commitments, we have to face the reality that in the foreseeable future parents and the sector just aren’t going to get the level of funding they need from the public purse to make childcare truly high-quality and affordable for all.
A creative solution is urgently needed to help families to better manage the costs themselves. The NCCS provides that solution. Under the scheme, parents will be able to access financial support from government, capped at £10,000 in total, to pay for childcare for any of their children under school-age.
This assistance is above and beyond the existing government support available for childcare. The money from government would be delivered to a Smart Card which parents could use at any formal childcare provider. Liability for subsequent payments from earnings would sit with the main earner in the family, who would contribute 6 per cent of their gross income above the income tax personal allowance. These contributions end when the main earner has paid in full the support they drew down, or after 20 years, whichever is first.
Under our scheme, government would recoup the money it gives out through subsequent parental contributions. Consequently, the initial outlay need not count as government spending, with all the problems that would cause for a government seeking to tackle the yawning deficit. Some low earners may not pay in full what they initially received, but this shortfall would be covered by applying a modest interest rate to the total amount of parent draw down from the system. So, overall, the scheme would not cost the government money.
The idea seems to fit with parents’ needs. When YouGov asked parents what they thought of the proposal, 57 per cent of those who expressed an opinion said it was a good idea. Over a quarter of all parents said they would be likely to use the scheme.
Many parents, of course, will continue to look after their children at home. Others will prefer to use informal childcare. But it is encouraging that a quarter of parents who currently do not use formal childcare, and 28 per cent of those using informal care such as grandparents, said they would use the scheme, which would mean a shift to the use of formal childcare. So the scheme would likely increase demand for formal childcare, raising take-up to for the benefit of children, parents and society.
This scheme has an added benefit which could correct some problems with the current childcare market. It will bolster demand by making childcare much more affordable. This will increase the amount and reliability of revenue coming into the sector, allowing providers – who currently face limited profitability because they operate in fragile, localised markets - to invest much more in the quality of staff and the flexibility and sustainability of provision.
The SMF wants formal childcare to be a universal, high-quality part of Britain’s education system. Doing this is the key to making work pay and boosting social mobility. With public finances limited, the National Childcare Contribution Scheme offers a real hope of giving all children a better beginning.
- Download the full report A Better Beginning: Easing the Costs of Childcare
