Skip to main content

To Work or Not to Work: That is some parents’ question

Parent and child

Dropping off children at nursery has never felt such a privilege as in modern UK times. Families spend a consistent part of their income in an increasingly unaffordable and unsustainable system and the problem which has started spurring more radical ideas. For instance, the Institute for Public Policy Research (IPPR) has published a report supporting the quest for a universally accessible and affordable childcare for children up to 11 (i.e., from the end of the parental leave until the end of primary school). The reports claims this approach would boost the economy by an extra £13 billion a year for UK households by increasing the productivity of parents returning to work and/or extending their working hours, and generate extra £8 billion per year for the Treasury from increased tax and national insurance revenues, and from lower social security payments.

An estimated 700,000 households with 1.6 million children could see an uplift in their incomes by saving between £620 and £6,175 a year on childcare costs, depending on their specific circumstances. The report also finds that a higher investment in childcare provision in England would create an estimated 130,000 additional jobs in early years education and care. However, the estimated initial investment of £17.8 billion a year could be only partially offset by the £8 billion a year direct gain for the public and a further £2.1 billion savings from closing existing schemes that would no longer be needed if universal childcare is offered. That means, unsurprisingly, we need money to implement a universal scheme.

Interestingly, however, the reports states the measure would have additional benefits in contributing to a reduction of the social classes’ attainment gap, giving more children access to high-quality early years education; a reduction of the gender pay gap; and a reduction in the gender labour participation gap. More women (and men – but the gender skew is a primary problem) would be able to return to full-time work, leading them to progress further and faster in their roles. This would also mean an overall boost to the productivity of the UK workforce at a time when there is a shortage of workers across the economy. This is a crucial point. Over 4.5 million women are estimated to be unable to secure a job or increase their working hours due to unavailable or unsuitable childcare options, meanwhile we have lost over 4,000 childcare providers this year.

The early year childcare sector has its own ongoing problems. The topic of early years education funding and support to childcare costs was largely absent from the UK Autumn budget. While the budget included an extra £2.3bn per annum for schools in 2023 and 2024, it did not include any financial support for the early years. In addition, the budget increased the National Living and Minimum Wages across the UK of approximately 10% next year. While it is right to provide a better and fair pay for early years and childcare professionals, an increase in minimum wage without an increase in early years public funding may cause issues for a sector thar is already facing extreme challenges, especially after the pandemic and with rising inflation lifting the cost-of-service provision. This could then result in further increase in fees for parents, precisely when families are already under huge financial pressure.

Further, the agreed approximately £14bn tax cut on business rates does not include nurseries, and the promised plan to address the staffing crisis in the NHS and healthcare does not address staffing problems (of recruitment and retention) in the early years sector. This can then result in some providers having to cut the number of childcare places they can offer. The charity organisation Action for Children already states that high inflation alone could lead to more than 23,000 vulnerable children missing out on support.

The early years sector in England has received some support in the 2021 Spending Review: funding went from £3.6 billion in 2021–22 to about £3.75 billion between 2022–23 and 2024–25 to support the 15 hours of early education and childcare for all 3- and 4-year-olds and some 2-year-olds, and 30 hours for 3- and 4-year-old children of working parents. However, the Institute of Fiscal Studies in the UK has recently reported that higher-than-expected inflation means even that increase in support will not compensate for rising costs. They estimate that childcare providers’ costs are likely to rise by 9% in total between this year (2022–23) and 2024–25. Judged against these rising costs, total funding for the free entitlement will be 8% lower in real terms in 2024–25 than it is this year, and it cannot be compensated by a projected shrinking population of young children.

In addition to the free entitlement of hours in nursery, families can also receive support for childcare through the in-work benefit system and via tax relief, which are the only forms of support available for children not covered by the free entitlement. However, the report shows that spending on subsidies through the benefit system has fallen by nearly two-thirds in 2021–22, reflecting a longer-term trend of falling spending through the benefit system, linked to less generous payments and reduced caseloads.

The Chancellor Jeremy Hunt has addressed the Government’s concern regarding the sharp increase in ‘economically inactive’ working age adults since the start of the pandemic but so far without addressing some of the key structural barriers that impact on an individual’s ability to work, or to work more hours. This is very often related the high cost and low availability of childcare for working parents. Significant and ambitious investment in the UK childcare infrastructure is needed to ensure high quality, flexible childcare is affordable for everyone. This would not just be a step ‘forward’ for parents, but a step ‘upwards’ for society.

Dr Miriam Marra

Associate Professor of Finance
Published 9 December 2022
Leading insights