Reforms to Childcare Policy
Mike Brewer
Claire Crawford
Lorraine Dearden
10 year childcare strategy
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Longer paid maternity leave
More children’s centres
More free nursery education
Obligation for councils to organise wrap-around care
Higher subsidies to parents through childcare tax
credit
• Focus on childcare tax credit and nursery education
© Institute for Fiscal Studies 2005
Why intervene?
• To encourage parents to work
• To improve outcomes for children
• Efficiency
• Parents under-value benefits of childcare
(or work)
• Equity
• Equal access to childcare (or labour
market)
© Institute for Fiscal Studies 2005
Childcare tax credit
• Subsidises working families’ spending on
formal childcare
• Cost has grown substantially
• £45m in 1998/9 to over £1bn by 2007/8
• Now main way to make childcare affordable
© Institute for Fiscal Studies 2005
But is it achieving its objectives?
• Not targeted at poorest
• Does not help poorest children access childcare
• Indirect way to encourage work
• Childcare subsidies increase childcare use, but
not work
• Hard to calculate entitlements
• Vary with income, childcare costs, number of
children
• Does not help raise quality
• Parents can spend on any form of formal childcare
© Institute for Fiscal Studies 2005
Options for reform
• Drive up quality by giving money directly to
providers
• Encourage more mothers to work by linking
credit to work, not work and childcare
• Re-focus on poorest children, allow parents
to spend cash as they wish
© Institute for Fiscal Studies 2005
Free nursery education
• Before 1997 up to LEAs whether they
provided free nursery provision
• Conservative Government introduced
parental vouchers for 4 year olds (1997)
• Labour Government extended to 3 year olds
& made money flow to providers through
LEAs
• PBR 2004 announced increases in free
entitlements
© Institute for Fiscal Studies 2005
Costs of expansion
3
£ bn/yr
2.5
2
1.5
1
0.5
0
12.5 hrs/wk, 33 15 hrs/wk, 38
wks/yr (Current) wks/yr (2010)
© Institute for Fiscal Studies 2005
20 hrs/wk, 38
wks/yr
(Ambition)
Full take-up
How will it affect families?
• If use free provision:
• Very likely to use more nursery provision
• May increase hours of work
• If use both free provision & wrap-around care:
• Likely to use more free provision, but may use
less paid provision
• May increase or reduce hours of work
• If use only private nursery provision:
• Unlikely to affect nursery use
• May reduce hours of work
© Institute for Fiscal Studies 2005
Places per 100 children
Take-up of free nursery places:
3 year olds, January 2004
100
90
80
70
60
50
40
30
20
10
0
26
31
41
44
48
63
59
40
1 (most
deprived)
59
2
3
25
4
38
19
5 (least Average
deprived)
Quintiles of the deprivation index
© Institute for Fiscal Studies 2005
Other
Maintained
Is expanding free nursery
education sensible?
• More effective to target on poorer families or
areas
• But equity considerations, or desire to avoid
means-testing, may justify universality
• Will nurseries be able to provide extra hours
without costs rising?
© Institute for Fiscal Studies 2005
Conclusions
• Objectives of childcare tax credit have
changed over time, policy has not
• May be more effective to use policies more
closely focused on desired outcomes
• Free nursery provision for all is expensive
• Justified through equity, or desire to avoid
means-testing
© Institute for Fiscal Studies 2005