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21 February 2014

To solve the living standards crisis, all parties need to go much further on childcare

Too many many parents are trapped at home or are only able to work a few hours a week because of the rising cost of childcare.

By Spencer Thompson

With the price of childcare increasing at double the rate of overall inflation, there now seems to be agreement across the three main political parties that more needs to be done to make childcare affordable. This is likely to become a key battleground at the next election. Family living standards and childcare affordability is a doorstep issue in battleground seats across the country.

Many parents want to work but can’t afford to. Among two-parent families with children, the risk of child poverty is four times higher in families where only one parent works than in families where both do. Our original modelling, published today, suggests that the incomes of families with children aged less than five stand to gain an average of 20 per cent in disposable income upon a mother’s transition into work.

Families with children who are already in work are spending a larger and larger proportion of their income covering childcare costs. The Resolution Foundation has estimated that a median-income couple working full-time with two children aged 2 and 4 now pay out a huge amount for care, around a quarter of their disposable income.

Many people who are already working would like to work more hours but can’t afford too. Surveys of mothers frequently reveal a large gap between the hours mothers would like to work and the hours they currently are. A recent DWP survey found that more than 60 per cent of couples not working full-time would be willing to increase their hours of work if the extra costs were covered by the government. Again, if their needs can be met it is families themselves who stand to gain – our modelling shows that a mother transitioning from working part-time to full-time would see their disposable family income rise by around 20 per cent.

Of course, it is not just incomes that are at stake. Childcare is also good for child development and having more mothers in work would help to reduce gender inequality in earnings. But in an era of squeezed wages and cuts to working-age benefits, work can provide a valuable route out of poverty and lift living standards for families with children.

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So what are the political parties planning to do? The coalition announced extra funding in last year’s Budget to increase the value of childcare cash subsidies to families, through a new offer of tax-free childcare vouchers and within Universal Credit. The Labour Party, on the other hand, has said that it would also extend the weekly entitlement to free childcare at ages three and four from 15 to 25 hours for working families.

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But if we are to support more out of work parents into jobs, we will need to go further. In most other countries with high rates of employment among mothers of under-fives, publicly subsidised childcare is offered for more hours than in the UK. Prices are often capped so that parents only have to spend around 10 per cent of disposable incomes on care. We should be exploring both options here in the UK. Parents also need high quality childcare that is sufficiently flexible enough to fit around their work schedule. It‘s vital that we address the lack of provision at evenings and weekends.

Not all parents of young children want or are able to work. Public policy that supports parental employment should not be forcing people into the labour market. But many parents are trapped at home or are only able to work a few hours a week because of the rising cost of childcare. Helping this group into jobs and to progress has enormous potential for tackling the cost of living crisis, and should be a key focus of childcare and early years policy.

Spencer Thompson is Economic Analyst at IPPR