The coalition risks following the wrong path on childcare reform

Global experience shows that increasing subsidies to parents, rather than investing in services directly, is a costly and ineffective approach.

As part of next week’s Budget, the Chancellor is expected to announce reforms to the funding of childcare. While action on childcare is welcome, it is likely the changes will see a greater proportion of childcare funding flowing via parents to purchase childcare, rather than invested in services free at the point of use. The experience of other countries with a similar market-led system is that rather than leading to cheaper care, pumping more money into the market via parents leads to greater cost inflation, with little change in affordability. If the government really wants to go big on childcare, it should invest more money in services, rather than benefits.

What is going to be announced? Since the 're-launch' of the coalition in January, there have been numerous hints in the media. Despite widely-reported disagreement between the coalition partners, it appears the government has settled on offering greater funding to better-off parents via some kind of tax relief, combined with additional money tied to Universal Credit for poorer families. Beyond the previously-announced extension of the free Early Years Entitlement to the 40 per cent of poorest two-year olds, there is little sign that the coalition is looking to expand the free offer, preferring instead to give money to parents.

While it is good that the government is looking at greater childcare funding, we have to ask whether this is the best use of extremely scarce resources. The coalition hopes that putting more money in the hands of parents will lead to greater purchasing power in the market for childcare, with increased competition and innovation among providers acting to keep prices low and stable. But will this actually be the case?

In order to answer that question, we should look to the country that has been most committed to this style of funding. Australia enacted wide-reaching reforms to childcare over the last two decades, combining a mixture of de-regulation and increases in childcare benefits, whilst at the same time effectively shutting off direct funding to childcare providers.

What happened to prices? The Australian Bureau of Statistics collects robust inflation data on the cost of childcare. Looking at how prices evolved before and after the reforms provides a stark picture of the dangers attached to the changes being considered here in the UK.

In the ten years before the 1997 reforms, the price of childcare rose on average by 5.2 per cent a year, around a fifth higher than the general rate of inflation. But in the decade after 1997 relative cost inflation rocketed, with childcare prices rising by 7.2 per cent annually, more than two and a half times wider inflation. In 2008, rather than reverse course, the Australian government doubled down on their inflationary approach, increasing the value of the tax rebate offered to families. If anything it appears this worsened childcare costs – In the year to March 2012 prices rose by almost 10 per cent.

What is it about childcare that leads to this outcome? Why doesn’t parental purchasing power manage to keep costs low? Simply put, the market for childcare does not function like most competitive markets. It is inherently localised, risky for those looking to set up a business and vulnerable to severe cost pressures from staff outlays and rent inflation. Like many other public goods, it is better to let the state pool these risks and offer long-term and sustainable funding to keep costs low, rather than leave it to the market.

Will this experience be repeated here in the UK? All the signs are that the UK, which already has internationally high childcare prices, is set for further inflationary pressure. The sector in general is unprofitable, with a quarter of childminders operating at a loss last year, meaning prices may need to rise just to keep many businesses afloat. And surveys of the UK market suggest that the qualifications profile of staff in the sector has risen in recent years, but with little change in real wages. Having a higher-skilled workforce in the sector is welcome, but is likely to exert cost pressures in the near-term. All this will be compounded by the changes that will be made next week.

Throwing more money into a system that is struggling to stay afloat, as the coalition is planning to do, may look good on paper, but without controls on prices there is a real risk that the instant benefit families feel after next weeks changes will soon be eroded by price rises. Providers will see their existing set of users have a greater ability to pay, and, because of the difficulty of turning a profit in the sector, will understandably look to raise prices. Far from being a gold rush for the sector, these changes are more likely to re-enforce the status quo. At a time when there is little money around, this risks being a highly wasteful use of public resources.

What the childcare sector and parents really needs is higher and more sustainable funding for providers, with a greater number of hours offered free or at low cost to parents. It would be wrong to claim this comes cheap. Indeed, countries that have followed such a route, like Denmark and Sweden, tend to spend a larger proportion of GDP on childcare and early years provision. But by controlling the cost to parents directly, and offering a longer-term and more predictable source of funding to providers, there are real efficiency gains to be made under such a system.

All three main political parties realise the importance of childcare, and accept there is a role for the public sector in making it affordable. This is welcome. But how we go about funding childcare, either via parents or through providers and price controls, needs to be rigorously debated. We currently have a mixed system in the UK, with some free places through the Early Years Entitlement and some subsidies via the benefits system. It appears the coalition favours the latter. It is important that we realise the dangers of such an approach, and look towards a much more sustainable future for UK childcare.

David Cameron is pictured during a visit to a London Early Years Foundation nursery in London. Photograph: Getty Images.

Spencer Thompson is economic analyst at IPPR

Getty
Show Hide image

The joy of only winning once: why England should be proud of 1966

We feel the glory of that triumphant moment, 50 years ago, all the more because of all the other occasions when we have failed to win.

There’s a phrase in football that I really hate. It used to be “Thirty years of hurt”. Each time the England team crashes out of a major tournament it gets regurgitated with extra years added. Rather predictably, when England lost to Iceland in Euro 2016, it became “Fifty years of hurt”. We’ve never won the European Championship and in 17 attempts to win the World Cup we have only won once. I’m going to tell you why that’s a record to cherish.

I was seven in 1966. Our telly was broken so I had to watch the World Cup final with a neighbour. I sat squeezed on my friend Colin’s settee as his dad cheered on England with phrases like “Sock it to them Bobby”, as old fashioned now as a football rattle. When England took the lead for the second time I remember thinking, what will it feel like, when we English are actually Champions of the World. Not long after I knew. It felt good.

Wembley Stadium, 30 July 1966, was our only ever World Cup win. But let’s imagine what it would be like if, as with our rivals, we’d won it many times? Brazil have been World Champions on five occasions, Germany four, and Italy four. Most England fans would be “over the moon” if they could boast a similarly glorious record. They’re wrong. I believe it’s wonderful that we’ve only triumphed once. We all share that one single powerful memory. Sometimes in life less is definitely more.

Something extraordinary has happened. Few of us are even old enough to remember, but somehow, we all know everything that happened that day. Even if you care little about the beautiful game, I’m going to bet that you can recall as many as five iconic moments from 50 years ago. You will have clearly in your mind the BBC commentator Kenneth Wolstenholme’s famous lines, as Geoff Hurst tore down the pitch to score his hat-trick: “Some people are on the pitch. They think it’s all over. It is now”. And it was. 4 - 2 to England against West Germany. Thirty minutes earlier the Germans had equalised in the dying moments of the second half to take the game to extra time.

More drama we all share: Geoff Hurst’s second goal. Or the goal that wasn’t, as technology has since, I think, conclusively proved. The shot that crashed off the cross bar and did or didn’t cross the line. Of course, even if you weren’t alive at the time, you will know that the linesman, one Tofiq Bakhramov, from Azerbaijan (often incorrectly referred to as “Russian”) could speak not a word of English, signalled it as a goal.

Then there’s the England Captain, the oh-so-young and handsome Bobby Moore. The very embodiment of the era. You can picture him now wiping his muddy hands on his white shorts before he shakes hands with a youthful Queen Elizabeth. Later you see him lifted aloft by his team mates holding the small golden Jules Rimet trophy.

How incredible, how simply marvellous that as a nation we share such golden memories. How sad for the Brazilians and Germans. Their more numerous triumphs are dissipated through the generations. In those countries each generation will remember each victory but not with the intensity with which we English still celebrate 1966. It’s as if sex was best the first time. The first cut is the deepest.

On Colin’s dad’s TV the pictures were black and white and so were the flags. Recently I looked at the full colour Pathe newsreel of the game. It’s the red, white and blue of the Union Jack that dominates. The red cross of Saint George didn’t really come into prominence until the Nineties. The left don’t like flags much, unless they’re “deepest red”. Certainly not the Union Flag. It smacks of imperialism perhaps. In 1966 we didn’t seem to know if we were English or British. Maybe there was, and still is, something admirable and casual about not knowing who we are or what is our proper flag. 

Twelve years later I’m in Cuba at the “World Festival of Youth” – the only occasion I’ve represented my country. It was my chance to march into a stadium under my nation’s flag. Sadly, it never happened as my fellow delegates argued for hours over what, if any, flag we British should walk behind. The delegation leaders – you will have heard of them now, but they were young and unknown then – Peter Mandelson, Trevor Phillips and Charles Clarke, had to find a way out of this impasse. In the end, each delegation walked into the stadium behind their flag, except the British. Poor Mandelson stood alone for hours holding Union Jack, sweltering in the tropical sun. No other country seemed to have a problem with their flag. I guess theirs speak of revolution; ours of colonialism.

On Saturday 30 July BBC Radio 2 will commemorate the 50th anniversary of the 1966 World Cup Final, live from Wembley Arena. Such a celebration is only possible because on 16 occasions we failed to win that trophy. Let’s banish this idea of “Fifty years of hurt” once and for all and embrace the joy of only winning once.

Phil Jones edits the Jeremy Vine Show on BBC Radio 2. On Saturday 30 July the station celebrates the 50th anniversary of the 1966 World Cup Final live from Wembley Arena, telling the story of football’s most famous match, minute by minuteTickets are available from: www.wc66.org