Leading thinktank proposes universal childcare allowance
Parents in Britain still pay 70 per cent of their childcare costs compared to the European average of 30 per cent. This is in spite of a decade of intensive reform and total spending of £17 billion from 1997 to 2006 on services for young children. Nevertheless, according to ‘Little Britons’, a comprehensive new report into childcare choice for the leading thinktank Policy Exchange, parents’ preferences for childcare are not being met by the options currently available. The Government’s basic aim has been to encourage as many mothers as possible into paid work – and for children to be placed in formal childcare settings - but women would actually prefer, in many cases, for their children to be cared for in their own homes, the report concludes.
‘Little Britons’, compiled with the assistance of Dr Catherine Hakim of the LSE, critically analyses existing research on parental preferences for childcare, assesses the current childcare market through the Sure Start policy package and determines what families currently receive in terms of financial support through the childcare element of the Working Tax Credit (WTC) before making radical, costed suggestions for reform of childcare provision in Britain to enable parents to exercise meaningful choice.
Parental preferences
Surveys on parents views towards childcare commissioned by the Government over the last few decades show huge diversity in perspectives on family life, childcare and policy options. The survey reports fail to acknowledge these complexities in full and fail to underline the three key findings: informal care is still used far more often and more widely than formal care; the majority of parents (59 per cent) still never use formal care at all for children aged 0-14 years; and parents who refuse to use formal childcare have strong preferences for parental care. Users of formal childcare remain a minority, and there are no important differences between lone parents and couple families.
Other studies have further emphasized the desire for childcare in the home in a child’s very early years. A study in 2005 showed that childcare preferences at a child’s first birthday overwhelmingly favoured family care over nursery care. By the time of the child’s third birthday, childcare preferences had changed, with around 40 per cent favouring nurseries. Nonetheless, the clear majority still favours, and uses, family-based care over centre-based care, and individual care over collective care. Working mothers chose childminders and nannies almost as often as nurseries when parental care was not an option.
Dr Catherine Hakim said: “Numerous studies into parental preferences regarding childcare have revealed a much greater diversity of parental preferences than the Government would like to believe. One recent study from the Economic and Social Research Council (ESRC) showed that, in an ideal world, only one-third of mothers in Britain would use any childcare at all before their child’s third birthday”.
Sure Start
Sure Start has been changed so often in its short life that people are uncertain what its purpose is. There is a general perception that it exists to provide centre-based daycare but many Sure Start Children’s Centres do not actually provide childcare. Sure Start’s latest goal of a national network of Children’s Centres offering integrated services for children is laudable, but the report’s authors are sceptical as to whether such ambitions will be adequately funded. Poorly subsidised State provision is likely to damage the market as a whole, they conclude.
The childcare element of the Working Tax Credit (WTC)
As of December 2007, £1.4 billion annually was being distributed through the childcare element of the WTC. The underlying policy aim of linking tax credits to childcare is to encourage lone mothers back into work as a way of addressing child poverty. But fewer than 1 in 4 (223,800 out of 1,000,000+ in 2005) eligible single parents claim this tax credit. Take up of the electronic vouchers which allow parents to save tax and National Insurance contributions is even lower (1 in 50) because few employers operate the scheme.
Natalie Evans, Head of Research at Policy Exchange, commented: “Eligibility is the key problem with the Working Tax Credit. The work requirements are restrictive and families must use formal Ofsted-registered care, which limits parental choice. The income cut-offs are very low because the tax credit is largely designed to assist lone parents but only a small proportion actually claim it.”
Based on Policy Exchange’s analysis of what individual families currently receive, a low income couple working full-time receives only 13 per cent of their childcare costs per year for their child under two. Meanwhile, Policy Exchange’s research has found that a low income couple with one parent working part-time (and therefore requiring fewer hours of childcare) receives 55 per cent of their costs. An average income lone parent receives 40 per cent of his/her costs.
Proposals for reform
‘Little Britons’ proposes that funding support for childcare should follow the child and not be linked to childcare institutions or to parents’ work so that those parents who prefer informal care, such as relatives or childminders, or to look after their babies and toddlers themselves, are also supported.
The proposal requires scrapping the childcare element of the Working Tax Credit, the electronic vouchers and the one-off Sure Start Maternity Grant and providing instead a universal Parental Care Allowance (PCA) to parents caring with children of 0-3 years.
· £50-60 per week paid direct to all parents with children of 0-3. This is in line with parental care allowances in other European countries at around 15-20 per cent of GDP per capita and is equivalent to around 40 per cent of average income from the average part-time job.
· Payable from birth or after maternity pay has ceased until the child starts to use early years services in the first term after the third birthday. Those receiving a maternity package are already financially supported and the PCA should not commence until that support ceases, either through returning to work or electing to stay at home to look after the child. All 3 year olds are eligible for Early Years Entitlement which, with a target of 20 hours per week, provides childcare as well as educational development.
- Not tapered, meaning that the same amount is paid to each child no matter how many children are in the family. Tapering adds complexity.
- Not taxed. Taxing the PCA might act as a deterrent to work for low income families.
- Administered through Child Benefit. At £55, this payment, in addition to child benefit, would mean a weekly, universal, non-taxed cash payment for children under 3 of £73.80.
Dr Catherine Hakim again: “The proposal would be simple to administer, get into the right hands, allow parents to choose from a variety of childcare options (including staying at home), and provide carers with supplemental income if they give up work. Sure Start would still have a role, providing information and support for parenting, especially for the neediest parents.”
How to pay for it
Assuming 100 per cent take-up of the new PCA, this is a £5.4 billion proposal if it is untaxed (£4.1 billion if it is taxed). This is significantly more than is currently paid out through the childcare element of the Working Tax Credit, the electronic vouchers and Sure Start Maternity Grant. The authors of the report believe these schemes, combined with savings on administration costs, more use of private and voluntary day nurseries, tapering away the family element of the Child Tax Credit and reassessing Child Benefit for 16-18 year-olds, would meet the vast bulk of the costs of the universal scheme they propose. However, if government increased spending on children to 1.5 per cent of GDP, in line with Scandinavian countries, it could easily cover the cost of this policy recommendation.
Natalie Evans summarized the report’s analysis and recommendations: “The present arrangements for childcare in the UK are not flexible enough to meet the needs of today’s varied family structures and working hours. Rather than funding institutions, money should follow children. British parents, like those in France and Scandinavia, need more childcare choice. A simple, across-the-board childcare payment through the Child Benefit system is the way forward. It allows women who want to work to do so, and gives women the option to stay at home if that is what they believe is in their child’s best interests at the start of their life.”