Tens of thousands of low-income families in England have to pay to return to work after having children because childcare provision discourages work, according to a report.
The Institute for Public Policy Research (IPPR) has called for a government-funded universal preschool childcare starting immediately after parental leave to replace an “incomplete patchwork” of childcare provision.
The move would improve tax receipts, upskill the workforce and improve childhood outcomes, argues the IPPR.
In a damning report examining current childcare provision, the IPPR said England’s childcare market is on the “brink of collapse”, as government funding for free available hours fails to meet spiralling costs for providers.
The report states that:
Children in low-income households receive worse care than those in wealthier households
Workers leave the workforce because of the gap in childcare funding after the end of parental leave
Upfront childcare costs for parents on universal credit, even if later reimbursed, stop low-earners returning to work
A lack of affordable “wraparound” care is stretching family budgets to “breaking point”
The UK has the second highest childcare costs in the developed world, as fees have risen by an estimated £2,000 a year and have almost doubled for parents with a child under two since 2010, according to TUC research.
The IPPR has found that low earners face “staggeringly high” effective tax rates of up to 130% if they work more than 25 hours a week: as they pay income tax, universal credit tapers and childcare costs mount.
This would mean that an administrator earning £10.50 an hour with a partner earning a similar amount would effectively pay £3.51 for every hour they worked over 25 hours.
“The current childcare system has now created an environment which disincentives parents from work,” said Henry Parkes, IPPR senior economist and the report’s co-author. “You should not be worse off from working more. The system needs change.”
England’s childcare market has changed fundamentally in the past decade, according to the IPPR report. The number of state-maintained providers – which have “historically provided the highest quality care, and […] disproportionately served disadvantaged children” – has shrunk while for-profit provision has expanded, particularly in private equity owned nursery chains. According to the report “this has contributed to widening gaps in access and quality by children’s socio-economic background”.
The IPPR is calling for a “childcare guarantee” of 15 hours of free childcare for all preschool age children for 48 weeks a year; an extension of the 30 free hours for three and four-year-olds to cover school holidays, an expansion of wraparound care, and a new funding settlement for providers.
The IPPR estimates that making the current 15-hour offer available to some two-year-olds universal would cost an estimated £0.9bn a year, while a universal 30-hour offer would cost £1.8bn, or £2.1bn for 48-week coverage. In 2021/22 the government spent £0.88bn on street lighting.
Rachel Statham, co-author of the report, said that while there was public support for universal childcare, parents’ plight was being ignored by the government. “We’re seeing a litany of promised tax cuts but no serious investment in families. That would immediately help people struggling with their bills, but it is also an investment in children, the childcare workforce and in parents’ longer-term careers.”
A group of west London parents have started a campaign – including a petition and a rally outside Uxbridge Civic Centre on Thursday evening – after Hillingdon council said it intends to close all three council-run nurseries permanently in December.
Parents in the Save Hillingdon Nurseries group argue that private nurseries in the area are between 25 and 100% more expensive than council-run nurseries and will leave many parents with no choice but to stop working. They also argue that some parents with children who have special educational needs – which were met in the council nurseries – have been told that their child cannot have a place in local private nurseries because of their requirements.
Orest Bakhovski, from the group, said the council had made the decision under “special urgency” rules, which meant it was fast-tracked with no scrutiny or consultation with parents and the local community.
“For a lot of people these nurseries are a lifeline and mean both parents can work,” he said. “We think no one has really tried to keep these nurseries alive and that’s because it’s not a statutory service. As far as the council is concerned, they can wind the services down relatively easily and sell the land off.”
Hillingdon council said the three centres cost the borough’s council tax payers more than £532,000 a year in subsidy, and represented only 1% of the capacity in Hillingdon. Ian Edwards, leader of Hillingdon council, said: “With increasing inflation rates, the council is having to reconsider how it operates and explore where efficiencies can be found.”