New research from 91, KPMG & Central District Alliance
Bolder action to tackle the cost, availability and quality of childcare could unlock a sizeable economic prize by getting more parents and carers into work. That’s according to new research from 91, KPMG and Central District Alliance out today [29th February].
The report, No Kidding: How Transforming Childcare Can Boost The Economy, shows that increasing the employment rate among parents with children under the age of five by 250,000 could increase GDP by up to £11.3bn per annum, giving a potential annual boost to the UK’s public finances of up to £3.2bn.
It shines a light on the impact of the UK’s childcare system – the third most costly in the world, behind Ireland and New Zealand – which is negatively impacting the labour market. The report includes actions for the Government and businesses to help boost labour market inclusion, building on the recent expansion of up to 30 hours of funded childcare during term time for under-fives, gradually being rolled out from April 2024. However, it is anticipated that this will place additional demand pressures on already stretched childcare services.
91 is calling on the Government to urgently clarify funding arrangements for providers ahead of the April deadline before looking at a range of other measures to tackle the cost and availability of childcare, while maintaining its quality. These include: introducing an annual review to ensure funding remains sustainable in line with inflation and other economic factors; investing in the early years workforce; and – as the public finances improve – widening the eligibility of funded hours beyond term time to include school holidays and parents in training or education. It also calls on businesses to do more to support working parents. For example, backing more flexible working practices, setting up nursery workplace partnerships paid for via a salary sacrifice scheme and offering shared parental leave.
Muniya Barua, Deputy Chief Executive at 91, said:
“There is a compelling business and economic case to fix the UK’s broken childcare system, which is essential as firms look to recruit and retain staff, particularly women.
“While the Government has announced a welcome expansion of childcare support, without urgent action to clarify funding for providers, many parents are likely to face disappointment in April.
“There’s no quick or easy fix to the UK’s childcare challenge but it’s clear that bolder action could deliver a sizeable economic prize. Our proposals provide a menu of options to transform childcare from which the Government can draw on as the public finances improve. Some are relatively simple and low-cost, such as clarifying tax rules for employers looking to set up workplace nurseries, while others will require long-term investment.”
The report highlights that while childcare is a UK-wide challenge, issues around cost and availability are particularly acute in London with its higher housing and travel costs. A survey of parents and carers who use childcare services in the capital, carried out as part of the research, found that on average Londoners are spending more than a third (36%) of their monthly personal income on childcare, with 53% rating it as unaffordable, and nearly half (49%) saying the cost had pushed them into debt. It also looks at international models of childcare to understand what lessons can be learned in the UK, drawing on OECD data and focus groups from KPMG’s international offices. While like-for-like comparisons are challenging, given different policy priorities and funding models, the report shows the UK is a clear outlier when it comes to affordability. It also reveals that in those countries which have more qualified staff they can support higher ratios of children without any impact on parents’ perceptions of quality.
Anna Purchas, KPMG vice chair and senior partner for the firm’s London office, commented:
“Addressing the weaknesses in early childcare provision holds the potential to unlock substantial benefits – not only for working parents, and women looking to return to the workplace, but for our wider economy too. Seizing this opportunity will help increase participation in the labour markets and tackle skills gaps – especially in costly hotspots like London. Ultimately, it will help the UK maintain its position as a leading economy on the global stage.
“Policy makers and businesses must work together to make high-quality, affordable childcare a reality for more working parents. The UK’s childcare system is one of the most expensive in the developed world, and this is leading to difficult choices for parents and disproportionately impacting lower paid workers, especially women. Our country can learn a lot from facing up to the strengths and weaknesses of our childcare system, as well as looking at best practice in other developed economies, where funding matches policy ambition. Whilst there’s no silver bullet to address all the issues working parents and childcare providers currently face, that shouldn’t deter policymakers and businesses from working together to develop a clear roadmap to tackle the issues. Doing so will not just be of benefit to our economy, but it will give many children a better start in life and increase the number of parents entering the workplace and progressing in their careers. Even a small incremental effect on participation will lead to economic and productivity gains as our skills shortages are met and businesses have access to a bigger pool of talent.”
Looking at the report’s recommendations in more detail:
To improve the affordability of childcare, its recommendations for the Government include:
- Widen the 30 funded hours entitlement so that it is available for 48 weeks of the year so that parents of pre-school age children (three- and four-year-olds) do not have to muddle through the school holidays.
- Widen the eligibility of the 30 funded hours entitlement so that it captures those in training or education.
- Smooth the sudden cliff-edges and distortions that are a feature of eligibility for the 30 funded weekly childcare hours and Child Benefit Entitlements.
- Bring forward the timeframe for increased funding to primary schools to provide wraparound care, so that it is available from September 2025.
- Clarify the taxation rules for Workplace Nursery Partnership exemptions.
On the availability of childcare, found that only 61% of parents and carers surveyed think that availability will meet their needs following the expansion of funded hours, and a significant proportion of providers (42%) already also have full waiting lists*. The report makes the following recommendations for Government:
- Establish a mechanism for annual review to ensure that funding remains sustainable in line with inflation and other economic factors, and nurseries continue to be properly reimbursed.
- Provide a temporary relief to all early years providers from Business Rates, similar to that offered to other sectors like leisure and hospitality, as a bridge to more fundamental reform of the system.
- Ensure that funding settlements equip providers to offer the pay and conditions required to attract and retain childcare professionals in a sustainable way by index-linking funding settlements to increases in the National Living Wage or average wage settlements in the sector.
- Ensure the planned public awareness campaign to promote the expansion of funded hours helps working parents to understand the different types of childcare support schemes available to them.
On the quality of childcare, the survey conducted as part of the report’s research found that despite the high costs, over two-thirds of parents and carers surveyed recently in London (68%) rated the quality of their childcare as good or excellent. To maintain quality, the report’s recommendations for Government include:
- Invest in the talent pipeline and develop the career profile of the early years workforce to attract and retain more apprentices and graduates and to support the planned 25% increase in staff to child ratios to one to five.
- Work closely with Local Authorities to expand the network of ‘one-stop-shop’ Family Hubs, which bring together a range of information and guidance for parents, including mental health support, health visits, and parenting classes.
Debbie Akehurst, CEO of Central District Alliance, a Business Improvement District (BID) representing the areas of Holborn, Bloomsbury, St Giles, Farringdon, and Clerkenwell and home to more than 25,000 businesses and 133,000 employees, said:
“The issue of childcare is a fundamental one and this report highlights that, not only is addressing it the right thing to do, it also makes economic sense. At a time when our economy is facing challenges, the Government needs to take action to remove the barriers standing in the way of employment for all.
“As a BID representing thousands of London businesses, we know, through our members, the cost of hiring and retaining staff, and while companies can of course take action to support their employees, some of these issues must be addressed at Government level. We hope this report will help highlight some of the levers than can be used to ensure our childcare system is fit for purpose.”
The report also highlights a number of actions businesses can take to address the cost, availability and quality of childcare. This includes:
- Offering on-site childcare through a salary-sacrifice scheme, or with providers nearer to where employees live.
- Setting up a Workplace Nursery Partnership through a salary sacrifice scheme with existing providers to reduce the cost of childcare.
- Offering an employer-funded childcare subsidy or a deposit loan scheme as a flexible benefit policy.
- Facilitating more flexible working practices, including hybrid options, term-time working, compressed hours, and accommodating childcare drop offs and pick-ups, and use Job Shares to offer more entry points into work for parents managing childcare responsibilities.
- Offering Shared Parental Leave to give parents greater flexibility in how they care for their child in their first year.
- Supporting or sponsoring local childcare facilities with a view to increasing the range of activities that they can offer.
These proposals would need to be fully costed and subjected to a rigorous cost-benefit analysis; however, they could help to achieve substantial economic benefits by unlocking higher rates of labour market participation, which can help to deliver increased economic growth and higher wages.