The coalition's childcare figures don't add up

Without greater long-term investment, the relaxation of ratios is extremely unlikely to lead to the savings promised by ministers.

When the coalition announced its intended relaxation of childcare ratios, one of the central planks of their argument was that it would lead to lower prices for parents. With childcare cost inflation currently running at over twice the rate of inflation, reducing prices is an understandable goal of policy. But many academics and those in the childcare sector were understandably dubious over this claim. Yes, relaxing the number of children each childcare worker can care for may reduce the ‘per-child’ cost to the provider, but it is not at all clear that the gain from this increase in productivity will necessarily flow into lower prices for parents. Perhaps more importantly, it is not clear whether quality of care would improve either. This is concerning given that quality increases were a stated aim of the policy

Last Friday, the Department for Education responded to a freedom of information request, which asked them to show how they came to this conclusion. The DfE’s modelling claims that the increase in ratios could lead to a remarkably large reduction in prices from 12 and up to 28 per cent. Let’s explore some of the assumptions behind this figure:

  • It assumes that childcare providers will actually make use of the larger ratios available to them: It is far from clear that childcare providers even want to increase ratios. Original survey evidence carried out by IPPR found that almost three quarters (74 per cent) of childminders won’t increase the number of children they care for following an increase in ratios. Almost four fifths of this group thinks the increase in ratios will reduce the quality of their services. A similar survey by the National Children’s Bureau, covering the whole of the sector, found that 95 per cent of respondents were concerned about increasing ratios.  If so many providers are not willing to take up the coalition’s offer, the DfE’s modelling is largely redundant.
  • The DfE’s upper estimate of 28 per cent assumes no increase in the pay of most existing workers: In order to make use of the increased ratios for children aged over three, the example nursery used in the DfE’s modelling needs to replace two of its non-graduate staff with two early years graduates. Having paid for their increased salary, the entirety of the extra revenue is given to parents in lower prices. What this means is that the wages of everyone else working in the setting don’t budge, with those looking after children aged two and under asked to care for more children but with no extra pay.
  • The DfE assumes high ratios for younger children but with no increase in the qualifications of their carers: Forthcoming IPPR research shows that while relaxing ratios for over threes may be a sensible idea, higher ratios are problematic for younger children, who require much more intensive care. While one way to mitigate the impact of higher ratios on young children would be to increase the skills of their carers, the modelling assumes that the extra graduates employed focus all of their caring time on over-threes, in order to unlock the higher ratio for that group. So while the higher ratios may lead to lower prices, parents of under threes should understandably be concerned about the resulting impact on quality.
  • The DfE fails to point out that some of the savings may be retained by nurseries to boost profits rather than passed on to parents: Neither the 28 per cent nor the 12 per cent figure imply any channelling of extra revenue into the profits of providers. This is very unlikely to happen because the sector is so unprofitable. Last year over a quarter of British nurseries made a loss. The idea that nurseries will not use new flexibilities to boost their often meagre profits looks a heroic assumption, and has worrying implications for the future stability of the childcare market.

Industry website Nursery World has pointed out several other flaws in the methodology, including the assumptions that there are no empty places in settings, when in fact 20 per cent of places are vacant, and that workers need time to plan and manage delivery.

The coalition clearly thinks that relaxing ratios, combined with tweaking the package of benefits offered to parents to buy childcare, is going to solve the childcare affordability problem affecting families across the countries. But neither are a quick fix. Without more long-term investment in the skills and capacity of the sector to increase places and quality, and reduce prices, the 28 per cent figure announced last week is extremely unlikely to be achieved.

Spencer Thompson is Research Fellow at IPPR

David Cameron during a visit to a London Early Years Foundation nursery on January 11, 2010 in London. Photograph: Getty Images.

Spencer Thompson is economic analyst at IPPR

Photo: Getty
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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.