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

GARY WATERS
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In defence of expertise: it’s time to take the heart out of “passionate” politics

What we need is cool logic.

We are living through a bonfire of the experts. During the EU referendum campaign, Michael Gove explained that people had had enough of them. A few weeks later, his fellow Tory MPs took him at his word and chose a relative ingénue to run against Theresa May.

After declaring for Andrea Leadsom in the Tory leadership race, Michael Howard was asked whether it might be a problem that she had never held a position higher than junior minister. Howard, whose long career includes stints as home secretary and opposition leader, demurred: “I don’t think experience is hugely important.”

Even in this jaw-dropping season, that comment caused significant mandibular dislocation. I thought: the next Tory leader will become prime minister at a time of national crisis, faced with some of the UK’s most complex problems since the Second World War. If experience doesn’t matter now, it never does. What does that imply about the job?

Leadsom’s supporters contended that her 25 years in the City were just as valuable as years spent at Westminster. Let’s leave aside the disputed question of whether Leadsom was ever a senior decision-maker (rather than a glorified marketing manager) and ask if success in one field makes it more likely that a person will succeed in another.

Consider Ben Carson, who, despite never having held elected office, contested the Republican presidential nomination. He declared that Obamacare was the worst thing to happen to the United States since slavery and that Hitler may have been stopped if the German public had been armed. Yet Carson is not stupid. He is an admired neurosurgeon who pioneered a method of separating conjoined twins.

Carson is a lesson in the first rule of expertise: it does not transfer from one field to another. This is why, outside their domain, the most brilliant people can be complete dolts. Nevertheless, we – and they – often assume otherwise. People are all too ready to believe that successful generals or entrepreneurs will be good at governing, even though, more often than not, they turn out to be painfully inept.

The psychologist Ellen Langer had her subjects play a betting game. Cards were drawn at random and the players had to bet on whose card was higher. Each played against a well-dressed, self-assured “dapper” and a shabby, awkward “schnook”. The participants knew that it was a game of chance but they took more risks against the schnook. High confidence in one area (“I’m more socially adept than the schnook”) irrationally spilled over into another (“I’ll draw better cards”).

The experiment points us to another reason why we make poor judgements about competence. We place too much faith in social cues – in what we can see. As voters, we assume that because someone is good at giving a speech or taking part in a debate, they will be good at governing. But public performance is an unreliable indicator of how they would cope with running meetings, reading policy briefs and taking decisions in private. Call it the Boris principle.

This overrating of the visible extends beyond politics. Decades of evidence show that the job interview is a poor predictor of how someone will do in the job. Organisations make better decisions when they rely on objective data such as qualifications, track record and test scores. Interviewers are often swayed by qualities that can be performed.

MPs on the Commons education select committee rejected Amanda Spielman, the government’s choice for the next head of Ofsted, after her appearance before them. The committee didn’t reject her because she was deficient in accomplishments or her grasp of education policy, but because she lacked “passion”. Her answers to the committee were thoughtful and evidence-based. Yet a Labour MP told her she wasn’t sufficiently “evangelical” about school improvement; a Tory asked her to stop using the word “data” so often. Apparently, there is little point in being an expert if you cannot emote.

England’s football team is perennially berated in the media for not being passionate enough. But what it lacks is technique. Shortly before Wales played England in the European Championship, the Welsh striker Gareth Bale suggested that England’s players lacked passion. He knew exactly what he was doing. In the tunnel before kick-off, TV cameras caught the English goalkeeper Joe Hart in a vessel-busting frenzy. On the pitch, Hart allowed Bale to score from an absurdly long range because he was incapable of thinking straight.

I wish there were less passion in politics and more cool logic; less evangelism and more data. Unthinking passion has brought the Labour Party to its knees and threatens to do the same to the country. I find myself hungering for dry analyses and thirsting for bloodless lucidity. I admire, more than ever, those with obscure technical knowledge and the hard-won skills needed to make progress, rather than merely promise it.

Political leadership is not brain surgery but it is a rich and deep domain. An effective political leader needs to be an expert in policy, diplomacy, legislative process and how not to screw up an interview. That is why it’s so hard to do the job well when you have spent most of your time in boardrooms or at anti-war rallies.

If democratic politicians display contempt for expertise, including their own, they can hardly complain if those they aspire to govern decide to do without the lot of them. 

Ian Leslie is a writer, author of CURIOUS: The Desire to Know and Why Your Future Depends On It, and writer/presenter of BBC R4's Before They Were Famous.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt