What can the chancellor do to address the high costs of childcare?

This piece first appeared on the Guardian’s Comment is Free site.

Laura works 25 hours a week as an accounts administrator. After paying for childcare, she takes home only half of what she earns. This is an all too familiar picture for working families in Britain and, according to Monday’s report by theDaycare Trust, things are getting worse. The average part-time nursery place for a child under two now costs more than £5,000 a year, and more like £6,500 in London. Lower income families feel particularly hard hit this year because of last year’s cut to support for childcare costs, and will find themselves even worse off after this April’s change to tax credits. Eligibility for working tax credits will be tied to working longer hours and that will mean paying for more childcare.

We have long known that Britain has some of the most expensive childcare in the OECD. Parents in the UK spend 33% of their income on childcare compared to an average of 13% in the OECD. With the budget looming and the economy faltering, what is the chancellor likely to do to address the high costs of childcare and support more families to work?

According to leading Conservative backbenchers Elizabeth Truss and Claire Perry, childcare costs have spiralled out of control simply because the previous government wrapped providers in excessive regulation and a disproportionate inspection regime. So we should not be too surprised if the chancellor uses the budget to relax regulation on top-performing nurseries or childminders. In doing so, he might make things easier for some small providers. But will deregulation transform childcare in Britain? There’s not much evidence that it will. Will it reassure parents that their children are safe and well cared for? Hardly. Much of the regulation that was introduced was in response to a childcare market offering substandard care by barely qualified staff.

Childcare loans also appear to have found favour with government, but they are not the answer either. Unlike students, who can expect a sharp increase in income when they graduate, parents are likely to see their incomes fall when they have children. For women in particular, the move to lower-paid part-time work when they become mothers is often not entirely reversed even when their children go to school.

A good place to start our search for answers to Britain’s childcare problem is in those countries that have the highest proportion of mothers in work across the OECD: Iceland, Norway, Sweden, Switzerland and Denmark. What marks out their approach to supporting families from ours is that a far greater share of their investment in families is made through services, rather than cash benefits and tax credits. Nearly 50% of Denmark’s overall budget for family policy goes to services, compared to only 26% of the UK’s, and over three-quarters of mothers in Denmark are in work, compared to just over 60% in the UK.

Over time, we should look to tilt the balance towards investment in families via services, starting with childcare for primary school-age children. It is in the primary years that we can get the biggest employment bang for every pound of government investment. As we reported in The price of motherhood, many women choose to work part-time when their children are very young. When they get to school age, however, many mothers would like to work longer hours. But the costs of childcare to wrap around the school day and cover the holidays can wipe out the financial benefits of extra hours at work, not to mention the juggling act to reconcile the mismatch between the school day and full-time work.

The introduction of universal credit looks set to make things worse for women who want to work more. A single parent on a modest wage who extends her hours from 28 to 32 will take home only 14 pence of every additional pound she earns. As a consequence, full-time work among mothers with school-age children is far lower in Britain than in the rest of the European Union. In last year’s autumn statement, the chancellor found an additional £340m to extend free childcare to the 40% most disadvantaged two-year-olds. Investing the same again in school-age childcare would pay huge dividends for families and the economy by helping women take home a greater share of what they earn.