Baby steps to Growth
In the Prime Minister’s first speech of 2023, one of his 5 pledges was to grow the economy. A newly-launched Conservative caucus called the Conservative Growth Group (CGG) has suggested ways for this to happen.
One promising avenue suggested by the CGG relates to reforming the childcare system. It's indisputable how important childcare is. It makes it easier for parents (particularly mothers) to work and progress in their careers.
As all new parents will know, childcare in this country is very expensive. The UK has the fifth most expensive childcare system in the world, with single parents on an average income spending 47.65% of their earnings on full time childcare. Even two-parent households on average incomes are still spending 23.82% of their combined earnings.
This is not a new problem. The Exchequer has previously invested money into various childcare schemes, but these subsidy schemes are complex and inflexible. The Free Early Education Entitlement Scheme which provides up to 15 or 30 hours per week of free childcare for all 3-4 year olds in England, is an example of good intentions resulting in dysfunctional policy.
The scheme can only be used with an approved childcare provider and for only 38 weeks a year — the equivalent of school term time — so parents seeking childcare through holiday periods aren't able to do so. Parents also have to pay the additional costs of meals and nappies. They also have to wait until the term after the child’s 3rd birthday to access the scheme, so what do parents do until their child is 3? Quit work and sacrifice career development to provide childcare they can't otherwise afford? This is all before even considering the lengthy waiting times for actually accessing childcare; if you intend to get your child into childcare at a reasonable time, you are advised to sign them up while you're still pregnant.
Clearly, childcare needs reforming along with many other parts of our public policy that are restricting economic growth. The CGG rightly suggests that rather than subsidizing childcare through the inflexible schemes we have now, it is time to move beyond our ‘one-size-fits-all’ approach. One example of how this could be achieved is providing tax reliefs to parents so they have the freedom and flexibility to pay for the childcare they want, where they want and when they want. Ultimately, this won’t cost the taxpayer a penny and is a much more effective solution for new parents and the childcare crisis.
Another beneficial policy we often raise here at the Adam Smith Institute is relaxing staff:child ratios to improve access to care and reduce costs for households who struggle with rising prices. Indeed, in the UK, with our current 1:4.5 average staff:child ratio we are the highest in Europe. Economic analysis suggests that if we reform our staff:child ratio to 1:9, the cost of childcare could more than halve.
Critics of this policy naturally turn towards the view that adapting our strict staff:child ratios would reduce the quality of the service but in reality this is not the case. What impacts the quality of childcare the most is not the staff:child ratio but the education of the staff, which has become a prominent issue due to staff shortages that have meant finding qualified workers is much more difficult.
Ultimately, change is needed, childcare is far too expensive and it’s significantly reducing the UK’s growth rate. The CGG’s suggestions for change are welcomed and should be taken into consideration, not just on childcare but on other pro-growth policies they suggest.
