David Cameron's great childcare con

This isn’t just bad news for parents and children, it’s bad news for the economy too, says Sharon Hodgson.

Today’s coverage of David Cameron’s childcare policies has illustrated how out of touch this Government is. While they give tax cuts to those at the top, they have totally failed to support hardworking families with the cost of childcare.

As one mother, who works from home as a childminder, put it: “I remain unconvinced that it does anything for the typical working/lower middle class family”.

She is right. According to the Resolution Foundation think tank, 900,000 low income working families will not benefit from David Cameron’s childcare vouchers.

And of course no-one will get any help until 2015. There has been nothing for families in five years from this Government, while costs continue to rise and wages stagnate. And of course when it comes to living standards, hardworking parents have already seen their family budgets squeezed.

Working parents with two children have already lost £1,500 a year from the cut in childcare tax credits. Added to that, many mums have lost hundreds of pounds because of cuts to maternity pay, child benefit and pregnancy grants.

By the next election, George Osborne will have taken a total of £15 billion out of parents’ pockets.

All this is happening while costs continue to spiral. Childcare costs are rising faster than wages. A parent buying 50 hours of childcare per week for a child under two now faces an annual bill of nearly £11,000 per year or £14,000 per year in London. That’s the equivalent of a second mortgage.

And yet provision is getting patchier. Unbelievably, there are now 5,000 fewer childcare places since last year, as nurseries close down and childminders go out of business.

And many nurseries and children’s centres are charging top up fees for services that used to be free, pricing yet more hardworking families out of the labour market.

This isn’t just bad news for parents and children, it’s bad news for the economy too.

Labour want to ensure parents are able to go back to work if they want to. That’s why we’re looking to countries in Scandinavia who provide stronger support for childcare and where female unemployment is lower.

But this Government has made it more difficult for new mums to return to their job.

An Aviva survey found that 32,000 women left the workforce in one year since summer 2010 due to high costs of childcare making it more cost-effective to stay at home.

The summer holidays are a particularly tricky time for working parents. Those who can’t afford a private nanny or nursery are often forced to take time off work or rely on help from friends or families.

Labour was working to address this in Government. We tripled the number of holiday childcare places, but in their first year this Government cut 10,000 of those places, and have slashed the budget for holiday childcare by 40% so far.

There’s no doubt that childcare costs are one of the biggest drivers of living standards. The trouble is that hardworking parents have seen their income squeezed since the last election.

Only David Cameron could be so out of touch to think parents will be grateful for some help in 2015, when they’ve already seen their childcare support cut.

Sharon Hodgson MP is Labour’s Shadow Children’s Minister

David Cameron visits a school. Photo: Getty

Sharon Hodgson is Labour MP for Washington and Sunderland West. 

Getty
Show Hide image

Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation