Can Britain afford a huge expansion of free childcare?

There are two questions that are asked immediately after the unveiling of any bright, shiny new policy by politicians trying to woo voters. The first: can we afford this? Swiftly followed by: who is going to pay?

Given Britain’s heavy debt burden (equivalent to 97.9 per cent of the nation’s GDP at the end of April), high taxes and creaking public services, it is a perfectly fair one to ask. So can the nation afford the vast promised expansion of childcare provision?

Labour recently stirred the pot by unveiling plans for the creation of 3,300 new nurseries in primary school classrooms. This will cost £135m, which will be funded by VAT levied on private schools. The plans come with the advantage of making use of public space that would be otherwise empty because England is expected to have around 400,000 fewer primary school pupils by 2029.

Labour’s plans would create around 100,000 new nursery places in total – a 6 per cent increase on what is currently available, according to the Institute for Fiscal Studies (IFS). So far, it all seems pretty sensible.

But the really big spend comes from the plans the Conservatives have already announced, which would expand free childcare for working parents in England with children under five by September 2025.

Labour’s biggest childcare promise is its matching commitment (for the record, it says its school nursery plan is part of that and is essential to making the scheme work).

The Tory plans have been described by the IFS as “highly ambitious” – an example of classic British understatement. “Highly ambitious” translates as “hideously expensive” when one considers the £4bn total cost.

Spending in this area has been rising rapidly for some time. In fact, the total outlay on early years education and childcare more than quadrupled between 2001-02 and 2018-19, when it reached a peak of £6.5bn. It has since fallen, to £5.4bn, but that number is set to almost double to approaching £10bn.

But for context, the expanded childcare commitment is still a tad less than the oft-discussed “triple lock”, which ensures state pensions rise by the increase in average earnings, inflation or 2.5 per cent, whichever is highest.

According to an Insight publication in the House of Commons Library, the lock costs around £10bn, taking the £114bn total cost of state pensions – had they been upgraded by either the rise in average earnings or by CPI inflation – to £124bn.

This is before we get to the economic and fiscal benefits of making it easier for parents to return to work after having children. Which, let’s be honest, means mothers, who in most cases perform the lion’s share of childcare duties.

Interestingly, Christine Farquharson, an associate director at the IFS, notes that a good chunk of that benefit comes through helping children. “One thing that is really interesting if you consider the economic case is that two-thirds of the expected benefit flows through benefits to children in terms of child development rather than through the financial return of helping mothers,” she said.

The headline fiscal benefits are, by contrast, limited because many mothers who choose to return to work prefer part-time positions. One of the problems with this is that it inhibits career progression, earning potential, and thus the amount of tax people pay. Part-time workers tend to get locked into fairly low-waged occupations and enjoy only limited opportunities for promotion and higher earnings. Therein lies another policy challenge.

Could childcare be made cheaper? Potentially. Farquharson identifies the staff-to-child ratio, which is very high here compared with other countries, particularly when it comes to younger children. However, attempts to reduce that ratio inevitably cause controversy. This is something that might be rather easier for a Labour government to tackle than a Tory one if it were so minded.

The other point to note when one considers the outlay is that childcare policy is aimed squarely at working parents. Young working families, typically, face high levels of expense (housing costs and loans, to name but two examples) that older people don’t have.

Pensioners were also protected throughout the austerity years. The triple lock isn’t the only expensive benefit enjoyed by those who are sometimes quite wealthy. Benefits such as free TV licences and winter fuel payments aren’t means-tested. The Rolls-Royce-driving Lord Sugar can watch himself appearing on The Apprentice in a toasty mansion during cold snaps gratis, which is something a working family in Daventry, with all the expenses they incur, can’t do.

Working families deserve a break. Reducing the expense of childcare might give them one.