Remove age restrictions on childcare support for parents in training to improve productivity, urges Treasury Committee

The Treasury Committee has today published a unanimously-agreed Report on Childcare, in which it makes a series of recommendations to the Government:

• Remove age restrictions on childcare support for parents in training to improve productivity
• Keep childcare voucher scheme open until winners and losers of discontinuing it are known
• Pay a higher hourly rate to local authorities for 30-hours free childcare scheme
• Improve awareness of Tax-Free Childcare scheme and quality of website

Report Summary

• A key objective of the Government’s childcare policy, including 15 and 30-hours free childcare and Tax-Free Childcare, is to improve productivity by allowing parents to return to work at a level more consistent with their skills. However, the impact on the UK’s overall productivity performance is uncertain and more research would be welcome. The Treasury should assess the Government’s childcare policies to better understand how they affect parental employment and productivity, and to determine whether the cost to the taxpayer of childcare support is outweighed by the economic benefits.

• Parents may need to retrain to return to work. As it stands, parents over 20 are excluded from receiving proper childcare support. To improve the UK’s productivity by encouraging lifelong learning and the acquisition of new skills, including English language courses, the Government should remove age restrictions on childcare support for parents entering training or education.

• The Government’s 11th hour decision to postpone the discontinuation of the childcare voucher scheme by six months is no way to manage childcare policy. As the Government moves towards Tax-Free Childcare, it must scrutinise the change to understand the extent to which parents will be made better or worse off, and should do so before the six-month extension of the voucher scheme ends in October. The Government should consider keeping the childcare voucher scheme open until this information is available.

• The Government’s statement that it provides £4.94 per hour to fund 30-hours free childcare is misleading as it excludes the proportion retained by local authorities, and includes money for some specific schemes (e.g. Early Years Pupil Premium). The Department for Education carried out its own study in 2015, which calculated an average hourly cost of between £4.25 and £4.37, but these figures pre-date the introduction of the National Living Wage, increases to National Insurance, and pension auto-enrolment, so is therefore out-of-date. The most recent estimate of the average cost per hour of providing childcare is £4.68. The average rate that the Government actually passed on to providers for 2017-18 was £4.34, meaning some providers will receive less funding than the costs they incur. As a result of this shortfall in funding, some providers have started:
  • Restricting the times at which parents can claim 30 hours, reducing provision flexibility
  • Cutting back on higher-qualified staff and increasing child-to-staff ratios, reducing provision quality
  • Charging for services that were previously free (such as food and activities) and increasing charges for children who aren’t eligible (e.g. under threes). As a result, providers in higher income areas will be able to better mitigate funding shortfalls than those in more deprived areas. 

If the Government wants to avoid these consequences, it should pay a higher hourly rate to providers that reflects their current costs, update this rate annually, and also ensure that all the money provided to local authorities is passed on to childcare providers.

• Tax-Free Childcare has a take up rate that is 90 per cent lower than HMRC initially expected, which is largely due to low awareness of the scheme, and the fact that some parents may prefer to remain on the childcare voucher scheme. The Government should improve its communications strategy for the scheme to increase awareness and take up.

• The consistent failure of the Tax-Free Childcare website, which has caused stress and inconvenience to thousands, is unacceptable. The Government should only launch websites when they are satisfied that they are fully functioning. The multiple sources of official guidance for childcare policies, some of which contain factual errors, should be supported by a helpline with specialist advisers, capable of accessing all childcare accounts and advising parents on all childcare schemes. There should be one online portal for applications to all childcare schemes to avoid confusion, and the Government must simplify its range of childcare support to address complex interactions between schemes.

• Under the childcare element of universal credit, parents are now required to pay childcare costs up front before seeking reimbursement. This was not the case under working tax credits. This fundamental design flaw should be rectified urgently as it undermines the objective of supporting the lowest-paid parents into work.

• Entitlement to 30-hours free childcare only begins the term after a child turns three. As employment is a requirement for eligibility, if a parent is offered a job in January, their entitlement won’t begin until the summer term. There is no justification for delaying entitlement; it should begin as soon as a child turns three.

Commenting on the Report, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:

“The Committee has heard no evidence that the Government’s childcare policy will improve the UK’s productivity. More research by the Treasury on whether the cost to the taxpayer of childcare support is outweighed by the economic benefits would be welcome.

“One possible way to improve productivity is to remove the age restrictions on childcare support for parents entering training or education. Many parents may need to retrain or upskill to return to work after having children. It is therefore short sighted for the Government to exclude such parents from receiving such childcare support.

“The Government’s 11^th hour stay of execution for the childcare voucher scheme is poor management of childcare policy. There will be winners and losers of the Government’s decision to move towards Tax-Free Childcare. The Government should keep the voucher scheme open until it understands the extent to which parents will be made better or worse off as a result of discontinuing the scheme.

“On funding, the jury is still out. The Government’s own figures on how much it provides per hour to fund 30-hours free childcare are often misleading and out of date. One estimate suggests that there would be a total sector-wide shortfall of over £157 million per year from 2017-18.

“As a result, some childcare providers are altering their services, potentially redistributing resources away from low income parents towards higher income parents. If the Government wants to avoid these consequences, it should pay a higher hourly rate to providers that more accurately reflects their current costs.”