A substantial childcare package from the Chancellor – but children’s needs take a back seat

Claire Crawford and Laura Outhwaite

We had to wait almost an hour to hear details of the heavily trailed package of childcare reforms announced by the Chancellor in the Budget today, but when the moment finally arrived, it lived up to its pre-programme billing. This was the most significant investment in childcare for years.

But while the Chancellor presented the reforms as part of the “Education” pillar of his 4 Es of economic growth and prosperity, they should really have been part of the “Employment” pillar. These reforms were all about childcare as a route to higher labour market participation and working hours, for mothers in particular. There was nothing about the implications for children, their development and wellbeing, or the inequalities in access and child outcomes that these reforms would cement. And little on the importance of quality, which is vital to the success of these reforms.

The most substantial element of the reforms was the one leaked last night – the introduction of 30 hours per week of free care during term-time for children 9 months and older in working families. For a Chancellor seemingly interested only in the likely impact on mothers’ labour supply, our earlier work comparing the impact of offering 0 vs. 15 vs. 30 hours of free care per week during term-time offers some good news. We found that offering 30 hours per week of free care during term-time was effective at encouraging more mothers into work, while the offer of 15 hours per week had no effect. Although, as we have pointed out previously, it does seem odd for a policy focused on supporting working families to apply during term-time only. When stretched across a whole year – which is what many working families using private care have to pay for – it is really only 22 hours per week, and then only during certain hours of the day and excluding ‘extras’ like lunch.

More concerningly, these reforms will undo what little progressivity there was left in the system, funnelling more money to support children from potentially very high-income working families, while those in non-working families receive less support. The existing 15 hours per week of free care for the 40% most disadvantaged 2-year-olds will be dwarfed by the new reform. Only children from non-working households amongst the 60% better-off families will not be entitled to any free care at age 2. And, just as with the existing 3-4-year-old offers, those in families with household income of nearly £200k per year will receive more government support than non-working families on Universal Credit, who receive an 85% subsidy on their childcare spending (now up to a higher cap and paid upfront, rather than in arrears).

There are already large differences in skill development and school readiness between children from richer and poorer families by the time they start school, driven in part by differences in use of high quality early education. As we outlined in an earlier briefing note, high quality early education, including from as young as age 1, can benefit children’s development, especially for those from more disadvantaged backgrounds. But these reforms will bolster the amount of time spent in early education for those from better-off backgrounds, while doing little to improve the participation rates of those from more disadvantaged backgrounds. This is likely to exacerbate, rather than address  inequalities in child learning and development.

The benefits of early education found in the literature are heavily reliant on the provision available being of high quality. And in a move that will be hugely welcome to providers, the Chancellor also announced a rise in the funding rates paid for existing hours of free care. We’ll leave our friends at the Institute for Fiscal Studies to crunch the numbers on what the figures mean for the hourly rates paid to providers over the next few years. But it was notable that there was no mention of the funding rates to be paid for the new provision. This will be absolutely vital in determining how many providers choose to offer the free hours, and what quality of care they will be able to provide.

And quality is crucial to the effects of these policies. Not only for children’s development, but also for parents’ labour force participation. Parents will be more likely to use the provision available – especially for younger children – if they are happy with the quality of care their child is receiving, making it vital for labour supply decisions. Moreover, evidence suggests that a child attending a low-quality setting can have negative effects on the wellbeing of both parents and children. For all of these reasons, it is essential that providers are paid sufficiently for the care they deliver.

Alongside incentives to encourage more childminders to enter the system and schools to offer more wraparound care, the Chancellor also went ahead with the much-maligned reform to relax staff:child ratios for 2-year-olds from 1:4 to 1:5, bringing England into line with Scotland. As we set out in an earlier briefing note, there is little concrete evidence that this would significantly harm children’s outcomes – but neither is there much evidence that it would significantly reduce parents’ childcare costs, and a clear risk that it could further damage already low workforce morale. Given that today’s announcements may substantially increase demand for childcare for 1-2-year-olds – potentially requiring a massive increase in the staff needed to deliver it – ensuring that the pay and conditions of staff in the early years sector make it an attractive option will be hugely important.

The Chancellor certainly didn’t try to get away with tinkering around the edges of the childcare system. He has gambled on a large expansion of free childcare encouraging more mothers back to work, helping to fill vacancies and plug skill shortages in an effort to increase economic growth. But these short-term benefits for productivity may come at the expense of children from our poorest families missing out on the benefits of early education, potentially damaging productivity in the longer-term.