Fewer fiddly rules will help make childcare more affordable for all

Kristian Niemietz
HOW much would it cost the government to raise spending on childcare subsidies to the average level in Scandinavia? Your guess is probably wrong. As a proportion of GDP, the UK government spends more on childcare subsidies than Finland, Norway and Iceland, and about as much as Sweden. The only country ahead of us on this count is Denmark.

So if high levels of public spending were the solution, the UK would be a beacon of family-friendliness. But according to a report by the Resolution Foundation in 2012, a family bringing in £53,924 a year would have to devote 40 per cent of its disposable income, after housing costs, to put two children under five in full-time childcare. OECD figures show British childcare is some of the most expensive in the world.

The problem is not a lack of demand-side subsidies, but an excess of supply-side regulation. This is why education minister Elizabeth Truss’s announcement yesterday that the government will relax restrictions (including allowing each childminder to look after more children) is a step in the right direction – albeit a timid one.

Between 1997 and 2010, real-term government spending on childcare increased by an average of 12 per cent every year. Subsidies come in all shapes and sizes: cash and kind, universal and means-tested, work-contingent and age-contingent. The childcare element of the Working Tax Credit (WTC) refunds 70 per cent of formal childcare costs. Under the Early Years programme, all three and four year olds (and, in some places, two year olds) are entitled to 15 hours of free nursery schooling a week. Some Sure Start centres offer childcare services at subsidised rates. There are programmes which incentivise employers to co-finance their employee’s childcare costs, for example through tax-deductible childcare vouchers. We could keep adding more layers to this. But by now, we should have realised that Nordic spending levels do not guarantee Nordic results.

In Scandinavia, parents pay a lot for childcare as taxpayers, but this largely covers the cost. Direct-user fees only have a minor role. This is in contrast with the UK, where high out-of-pocket payments – among the highest in the world, according to the OECD – come on top of high tax payments. These extra costs explain why the flood of subsidies has failed to ensure affordability. In Sweden, about one in two low income parents use childcare services, while in Denmark the figure is almost three in four. Worryingly, in the UK, it is about one in four – no higher than the proportion most of Europe achieves at a fraction of the cost.

So what has gone wrong? The increase in public spending has coincided with a transformation of the sector, guided by the government. Childcare has moved from being relatively informal to become heavily-regulated and standardised. The day-to-day operations of both childminders and nurseries are now largely shaped by statutory regulation.

Truss is going some way towards remedying this. But she has tried to assuage her critics by pointing out that, even after the increase in minimum staff-to-children ratios, these ratios would still be higher than in many neighbouring countries. True, but this still reflects the belief underpinning UK childcare policy that the government should determine every detail of service provision. A better idea is for childcare providers to work out the ratios for themselves. And if they fail to keep children safe, they should be liable for the consequences. That should be the principle for wholesale reform of the sector.

Truss is also right to shift responsibility from regulators to childminding agencies, a move which means a partial substitution of private regulation for statutory regulation. But it is inconsistent to couple this with raising statutory requirements for formal qualifications – effectively a barrier to entry. Why not let each agency decide the qualifications they require from the childminders they sign on, and then signal this to their potential clients?

Bringing the cost of childcare under control would have many desirable side-effects; not least, it would enable more low-income parents to enter the workforce and earn a wage. But to achieve this, we need to get away from the current obsession with micromanagement. David Cameron was right to point out in his EU speech that not everything has to be harmonised – but that is no less true within the country.

Kristian Niemietz is poverty research fellow at the Institute of Economic Affairs.