Childcare – a positive step forward but not mission accomplished

By Jill Rutter, head of programmes and policy at Learning & Work Institute


22 03 2023


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The recent Spring Budget announced one of the biggest investments in childcare that this country has seen. This £4 billion boost to childcare has been welcomed by parents, but questions have been asked about who will benefit, whether costs could have been reduced further and whether the Government will be able to deliver on its promises.

Currently, parents get help with childcare through the childcare element of Universal Credit or the Tax Free Childcare scheme and through free early education.  Universal Credit covers up to 85% of parents’ childcare costs for those receiving this benefit, up to a monthly cap.

In the most up-to-date data from February 2022,  119,000 households were receiving help through Universal Credit, of which 77% were single parent households. The Chancellor has announced that the monthly cap will rise to £951 each month for one child, up from £646 today. Childcare costs will also be paid up front, rather than in arrears.

The Tax Free Childcare scheme reaches families in higher income brackets, with any parent eligible for help, unless their income – or their partner’s – is more than £100,000 in a year. The scheme covers up to 20% of childcare costs up to a maximum of £2,000 per year.

Across the UK, two, three and four-year-olds also receive free early education, provided in nurseries, school nursery classes or by childminders. By September 2025, this provision is being extended, with every child over the age of nine months (when parental leave ends) receiving 30 hours’ free early education every week for 38 weeks of the year until they start school, unless a parent earns more than £100,000 a year. The extension of free early education will take place in phases from April 2024 in England. While Northern Ireland, Scotland and Wales receive the same overall monies, their governments may decide to vary plans for its delivery.

Will the extra investment in childcare benefit low-income families?

The Office for Budget Responsibility estimates that the Budget’s childcare announcements and changes to benefit conditionality rules will mean that 85,000 more parents will be in work by 2027-28. When free early education was extended to disadvantaged two-year-olds in 2014, three in ten (32%) of parents did not use this provision. A National Audit Office report highlights the large disparities in its uptake, which varied 39% to 97% in different local authority areas in 2019.

Previous research has shown that mothers are less likely to return to low-income jobs after having children than those with established careers. Furthermore, childcare needs to cover the whole day, if it is to have a substantial impact on helping parents move back into work. The move to 30 hours of funded help may encourage more low-income families to use free early education. However, there tends to be fewer nursery places in deprived areas. The large nursery chains which now dominate the UK childcare market are rarely present in poorer communities, simply because it is less profitable. In Wales, a recent report suggests that just 15% of local authorities believe they have enough provision for children under two, and no local authority reports enough provision for families in rural areas. In the short-term, at least, there is a real risk that low-income families may not benefit because there are not enough places.

Childcare costs don’t end when children starts school. The Family and Childcare Trust reports that the average cost for an after-school club is now £67.42 per week per child across Great Britain, with holiday childcare costing £148 each week.  The poorest families will get help with these costs through Universal Credit, but the Government has decided NOT to merge Universal Credit and Tax Free Childcare into a single, progressive system, a move which would have simplified demand-side support and helped more families who aren’t poor enough to receive Universal Credit with their childcare costs. When Tax Free Childcare was first introduced, Family and Childcare Trust research identified 355,000 working families who risk being caught between two systems, usually because their income varies from month to month because of zero-hours contracts or overtime.

Could supply side reforms been more ambitious?

Childcare is by its nature expensive to deliver as a childminder or nursery workers can only care for a small number of young children. Staff to child ratios are set out in law.  The Government has now increased the number of children a nursery worker can look after, although this change is generally not popular with parents. Schools will also receive extra money to increase the supply of breakfast and after-school clubs so that children can receive childcare over a full day. Arguably, the reforms could have gone further, by increasing the use of public buildings to provide childcare. (Some 12% of the costs of providing childcare in the private and voluntary sector are rental or mortgage costs). With 62% of nurseries operating from a single site, the Government could have also incentivised mergers and cooperation to reduce administrative costs and increase economies of scale.

Will there be enough staff to extend childcare provision?

The Chancellor announced a golden handshake of £600 to encourage prospective childminders and extra funding for nurseries to cover rising costs and attract staff. Early years providers argue that this investment is not sufficient to attract extra staff.

In England, 339,000 staff are employed across 14,200 private nurseries, 6,600 not-for-profit nurseries, in 10,800 school or college nurseries or as childminders. Some 97% of early years staff are women. In 2020 the Social Mobility Commission reported that the average wage across the early years workforce was £7.42 an hour, with 13% of the workforce – usually apprentices – earning less than £5.00 an hour. Unsurprisingly, childcare providers report losing staff who move to better-paid jobs in supermarkets.  Ofsted’s latest annual report highlights the severity of the staffing crisis, stating  “nurseries have closed because they cannot recruit or retain high-quality, qualified and experienced staff”.

In summary, the Budget commitments have the potential to help thousands of parents who are struggling with nursery costs which average at £258 per week for a full-time nursery place for a child under three. But delivering on these commitments is going to require a major review of staffing needs in all four nations of the UK and significant Government investment to improve pay and train more staff.