Childcare costs – a ticking time bomb for the coalition?
Inclusion researcher, Pippa Lane, delves deeper into the flexible working debate and does the sums on affordable childcare.
I wrote recently about the role of flexible work in providing a piece of the family friendly labour market puzzle. Another key piece is affordable childcare. We know that the cost of childcare in the UK is a barrier to employment and that heavily subsidised, low cost childcare available in much of Europe – particularly Scandinavia – allows parents (particularly women) to more easily return to work.[1] But arguing for Scandinavian style subsidy amidst planned cuts to public spending of 25-40% is unlikely to be successful. A more useful comparison might be with other English speaking members of the OECD with liberal welfare regimes similar to the UK.
So, let’s take a couple who both work full time earning the national median salary and have a one year old child in full time childcare that costs the national average. And let’s compare how much this couple will pay in childcare fees after subsidy in England as well as two countries that have previously undertaken large scale public sector cuts/fiscal consolidation: New Zealand and Canada.
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England Income £25,428 x 2 = £50,856 Annual childcare cost = £9152 % of income before subsidy = 17.99% Voucher help = £1924 Out of pocket £7228 14.21% of household income. |
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New Zealand Income $27,976 x2 = $55,952 Annual childcare cost = $10,400 % of income before subsidy = 18.59% Government childcare subsidy = $9,620 Out of pocket =$780 1.39% of household income |
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Canada Income $41,401 x2 = $82,804 Annual childcare cost = $9,724 % of income before subsidy = 11.74% Universal childcare benefit = $1,200 Tax deduction = $1,278 Out of pocket = $7,246 8.75% of household income This is a worst case scenario as provincial and local government also provide additional (though varied) levels of subsidy for childcare. Provinces with low levels of subsidy to parents tend to have cheaper childcare as it is subsidised at supply side rather than demand.
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We can see that before subsidy, the cost of childcare as a percentage of household income for our couple is significantly more in England than in Canada, and slightly less than in New Zealand. After subsidy, however, the English family are by far the worst off paying an astonishing 14.21% of their gross income on childcare.
Middle income families pay such a high proportion of their income on childcare not just because of low public subsidy in this country, but because the subsidy that does exist is heavily targeted at the lowest income families through the tax credit system. The lowest income families can claim up to 80% of their childcare costs. This targeting away from the middle and towards the lowest earners through the tax credit system is becoming even tighter.
The coalition has made much of the theme that social mobility can be achieved through entering the labour market. However, the high cost of childcare makes many parents think twice about both parents working. And if parents do take extended career breaks to care for their children they find it more difficult to re-enter the labour market and more difficult to progress in their careers if and when they do.
In addition to the cost for working families – there is also a political cost to the lack of state subsidy for childcare. Both Canada and New Zealand went through periods of intense fiscal consolidation in the 1990s (New Zealand also went through a consolidation in the 1980s ‘Rogernomics’ period). In the decade after this large reduction in public spending, both countries saw centre left governments elected in which childcare subsidy to ease the burden on working families was central to the winning party’s manifesto. Middle income parents are a key constituency in the political centre ground, and the coalition would do well to learn lessons from Canada and New Zealand and ensure that working families do not feel excessive pain due to high childcare costs.
[1]See, for example: Stier, H., Lewin-Epstein, N., Braun, M. (2001), ‘Welfare Regimes, Family-Supportive Policies, and Women's Employment along the Life-Course’ American Journal of Sociology, vol 106, 1731-1760; Jane Elliott, Angela Dale and Muriel Egerton, ‘The influence of qualifications on women’s work histories, employment status and earnings at age 33’, European Sociological Review, vol 17, no 2.
Comments
Shouldn't the question we be debating is whether the state has ANY role in subsidising a lifestyle choice (which is what this is), not just comparing ourselves to other countries? Just because other countries provide high subsidies, doesn't mean we should do so without question.
Why do people in the UK think they have a god given right to have a career, a house, children, multiple cars, foreign holidays etc AND have the state fund this?
Your example isn't about a low income family, so don't try and argue that we're talking social mobility for low income families. A low income family would be two parents earning minimum wage. Two parents earning a combined £50k are NOT hard up and why should the state pay for their child care?! That POOR family in the example .... having to live on £42k a year after childcare costs. How absolutely shocking!
In my personal experience two parents (in the income bracket your example portrays) work because they don't want to compromise the lifestyle they created before they have children. The two cars, the holidays, the sky TV in every room, the mobile phones, laptops, iPad, latest games consoles, designer clothes etc. My household income as a youngster (and I'm not that old!) was barely £10k with 3 kids. My mum stayed at home and looked after the kids and dad was self employed, scraping a living. Yes we went without, we didn't have the latest anything, had hand me downs, holidays abroad, even a TV, and we had to WALK (yes you read that correctly) to school. But we had food on our plates, clothes on our backs, an education and principles.
Now if you're talking about a lone parent wanting to get back to work before their child reaches school age, then that's a different debate as child care costs are then a barrier. We need to decide whether to keep the parent with the child in their early years and pay for that, or help them with state childcare. But as it now seems that free nursery places are available virtually from birth (maybe a slight exaggeration but you get the point) is this really as big an issue as it used to be? And as we keep hearing about this flexible working we have in the UK shouldn't we be able to solve this problem WITHOUT a subsidy?
Hi Lazarus,
It's interesting that you raise the question of whether the welfare state should be subsidising middle income families - which is a big news item today!
My point is, that this family is by definition middle income. They're not a high income family and wouldn't be affected by yesterday's news about child benefit. I think middle income families should both benefit from and contribute to the welfare state.
Your suggestion is also not a good deal for taxpayers for the following reason. Let's say the mother has a degree and is working as an administration manager then takes 5 years out, as your suggestion. We know from longitudinal surveys that when she returns to work, she will do so at a level of someone with much lower qualifications (circa A level) and never recover to where she would have been. That's a poor use of the investment that the British taxpayers (though Higher Education subsidies) have made in her skills.
Of course, flexible work is also part of the puzzle (I wrote about that a couple of weeks ago).
You say that there is almost free nursery virtually from birth. No there isn't! That was the point of my article :)
Pippa