Newsnight recently reported that the government will announce a suite of childcare policies in the new year, as part of the Coalition’s mid-term review. Pressure has been building up for some time on the government to extend support for childcare – not least because of the cuts to the childcare element of the tax credits system – and many of us expected an announcement in the autumn statement.
Instead, it looks like Newsnight was given a (somewhat stray) pre-briefing of a new year policy package consisting of three parts:
- deregulation of child-to-adult ratios for under-fives
- improvements to the training and qualifications of childminders, following the recommendations of the recent Nutbrown review
- an extension of tax relief for childcare costs.
(It is also likely that the government will say something more about guaranteeing after-school club places for primary-age children, since this is a relatively cheap and simple way of helping families with childcare for children at school.)
Having been taken to task by IPPR and others over her advocacy of childcare reforms in the Netherlands, the new minister, Liz Truss MP, has instead begun talking about French childcare to buttress her case for deregulating child:adult ratios. The rationale for deregulation is that if childminders can take on more children then they will increase their revenues and drive down costs to parents. In standard free market fashion, the minister believes increased state regulation under the last Labour government put childminders out of business by cutting their revenues.
I have argued before that this argument doesn’t fit the UK data at all well, since the decline in childminders in this country under the Labour government happened primarily among those looking after children of school age, who faced competition from the growth of after-school clubs, not those looking after preschool-age children. The expansion of children’s centres also offered new employment opportunities to people who might otherwise have become childminders. So there seems little reason to believe that a change in the ratios will have much effect on price.
But does France disprove my case? True, if you look at the OECD tables on childcare ratios for French children under the age of two, the ratio is five children per adult, compared to three per adult in the UK. But these are averages. Most French children under three years of age (64 per cent) are cared for by their parents, since France has relatively generous paid parental leave and home care subsidies, reflecting its history of pro-natalist, socially conservative family policy. Licensed family childcare assistants (assistants(es) maternels(les)) look after some 18 per cent of under-threes at home, and they care for one to three children at a time. Only in crèches, which cater for 8 per cent of under-twos, is the 5:1 ration required (for children who can’t walk). In addition, 35 per cent of two-year-olds – usually children from low-income families – are in nursery schools (écoles maternelles), a figure which rises to 90 per cent for three-year-olds, where ratios are much higher. Consequently, it is very misleading to compare the average ratios in France with those in the UK and draw conclusions about the appropriate ones for childminders.
Moreover, the professional standards and qualifications attained by early-years practitioners are clearly also a significant factor in the equation. In France, as in the Nordic countries, the qualifications attained by those working in early years are higher than in the UK, considerably so for nursery schools: teachers in écoles maternelles must have a three-year degree and a further 18 months’ professional teacher training.
What about the funding of childcare? My guess is that the government will increase the amounts parents can claim in childcare vouchers free of tax and national insurance from the current rates of £55 a week or £243 a month for basic rate taxpayers. The government will argue that this is not regressive, since higher and additional rate taxpayers cannot claim the full rates of tax relief because of reforms to the voucher system controversially enacted by Labour in its final year. The childcare voucher companies have also been lobbying hard for these increases, since their business model is based on taking a large cut of the relief on employer national insurance contributions that the scheme offers, in return for providing the voucher payments for employees (much of which is done via the web). That’s money for old rope – and they’d like more of it.
However, tax reliefs are not as well targeted as tax credits, even if the benefits to higher-rate taxpayers can be restricted. Having cut the childcare element of the tax credit system, it would be singly unjust to extend reliefs to those higher up the income scale, even if many of them are basic rate taxpayers. Yet both tax credits and tax reliefs are inefficient ways of funding childcare. A wealth of literature on childcare provision shows that stable funding of providers via the supply side is more effective and efficient than demand-side subsidies. The Nordic countries excel in early-years provision because they have well-funded public provision. Their systems feature a mix of providers from different sectors, but the common factor is stable, long-term funding under the auspices of local public authorities.
There is a broader point here, which is that tax reliefs are a bad way of providing social protection and paying for public services. This is well illustrated by comparing social spending and outcomes in the US and the EU. As Lane Kenworthy has written:
‘The standard indicator of social policy effort is gross public social expenditures as a percentage of GDP. Denmark and Sweden are much higher than the United States on this measure.
‘Now shift to net (rather than gross) public and private (rather than public alone) expenditures per person (rather than as a percentage of GDP, with purchasing power parities used to convert Danish and Swedish kroner into U.S. dollars)…By this measure the U.S. is the biggest spender.’
As Kenworthy notes, however, the US gets far worse outcomes for its low-income citizens because a lot of its spending takes the form of tax reliefs, while direct transfers and spending on services is lower. Low rates of taxation mean that the US proportionately redistributes fewer resources:
‘So how well-off are the poor in the United States, with its ‘hidden welfare state,’ compared to social-democratic Denmark and Sweden? One measure is average post-transfer-post-tax (‘disposable’) income among households in the bottom decile of the income distribution. Here are my calculations using the best available comparative data, from the Luxembourg Income Study (LIS). (The numbers are adjusted for household size. They refer to a household with a single adult. For a family of four, multiply by two.)
The lesson for the UK is that we if are going to build up childcare provision and make it more affordable for families, we would be better off taking the Nordic high road of well-funded, high-quality services, rather than the low road of tax reliefs and deregulation. Unfortunately, that looks unlikely to be the case in the near future.