Why We Should All Care About Childcare

An example where the State is both too big and too small

The government has shelved Liz Truss’ plans to reform childcare. This is incredibly disappointing as reforming childcare would be one of the most effective ways to both boost productivity and tackle the cost of living crisis. 

For a number of reasons there is a labour shortage in the UK. One of these reasons is because childcare is incredibly expensive in the UK. This means that many parents are either working fewer hours than they would ideally like, working in a role or sector where their skills are perhaps not a perfect match, or have left the labour market entirely. This means that businesses do not have the workers with the skills they need working at a time they are needed. All of this hampers productivity and so ensures that economic growth remains sluggish.

It is also bad news for parents, particularly mothers as the burden falls disproportionately on women. It means that many women have to choose between starting a family and their career. They see themselves missing out on promotions and have lower earnings if they return to the workplace.

It also exacerbates the cost of living crisis. Childcare is one of the biggest expenses for households. Not only are parents forced to spend a significant proportion of their income on childcare, the fact that it is so expensive means that many parents cannot take full advantage of it and so are forced to work fewer hours. This is particularly problematic for single parents who do not have another parent to help share the costs or the responsibility. I grew up in a single parent household with a mum who wanted to work but simply couldn’t afford childcare and so only worked a few hours a week as a cleaner. As a result, many households remain in poverty with little prospect of escape.

The above reasons are why everybody should care about making childcare more affordable. However, I think there are other reasons which might appeal particularly to those on the centre right of politics.

For example, many conservatives have pointed to the importance of work as a route for people to better themselves and to escape poverty. People who you might class as belonging to the Iain Duncan Smith/Centre for Social Justice wing of Conservatism have done a good job at pointing out how work can give people a sense of purpose and the damaging impact of long term unemployment for adults and their families. However, for the reasons explained above it is difficult for many parents to take advantage of employment opportunities. As such, those on the centre right should care about childcare affordability.

The second reason is the demographic time bomb facing the country. This should concern everyone, but should be of particular concern to more conservative leaning people. I’m a proponent of Open Borders and so see immigration as a great thing and would like the UK to have much more of it. As such, I’m very happy for the UK to import the young workers it will need to pay the taxes to fund health and social care for an increasingly elderly population. However, I appreciate that I am in a minority in holding this view and so if those who are opposed to more immigration want to stop society collapsing then we need to make it far easier for people to have children if they choose to. Making childcare more affordable is one such way we could do this.

Making childcare more affordable should and does have widespread support across the political compass (the exception being hard left types who don’t think anyone should work and weird trad people who think the regime in The Handmaid’s Tale was onto something). However, there is no such agreement about how to make it more affordable.

One such way would be to increase the supply of people working in childcare. A simple way to do this would be to remove many of the requirements over qualifications for those in the industry. We could simply insist that as long as the setting passes a health and safety test and that the people involved have a clean DBS, then they should be allowed to work in the sector. There is no need to think that this would lead to a race to the bottom in terms of care given that parents do tend to take the welfare of their children very seriously and the availability of reviews means that standards could remain high while also increasing the supply of childcare workers.

Related to this, we could look at staff to child ratios. These are high in England compared to many other comparable countries in Europe, with some countries having no minimum ratio requirements at all. Removing these requirements could help to cut costs for childcare providers as they would have to employ fewer staff members.

However, on both these points we need to be careful to not see them as a panacea (as some of my fellow free market travellers sometimes do). Many providers have stated that they would not want to take advantage of any liberalisation of the rules. This is understandable and could see providers in a type of Prisoner’s Dilemma where no provider wants to be the first to liberalise, especially if they do not know what their competitors would do. I have a lot of sympathy for this and I think it is a fair argument that incumbents in the market might not take advantage of the changes to the rules, but it could encourage new entrants to the market. These new providers could provide childcare under the new rules at a lower price which some families could benefit from and the increased competition could lead to more established providers following suit.

The two policy suggestions are essentially the State getting out of the way. However, we also need the State to get much more involved. It should do this by spending a lot more money. 

One of the reasons that supply is low is because the pay is low. If we want to encourage more people to provide childcare then we need to make it much more attractive. We need higher profits for the businesses involved and higher wages for the workers. The government should pour much more money into the system to ensure this happens.

One of Truss’ proposals was to give the money directly to parents as opposed to providers. This is controversial and there is a danger that the money could just be kept by parents and encourage them not to work. Although I think this could be the case for some parents, I think the fear is unfounded given that many people would like to return to work or work more hours. What is more, direct cash transfers which enable parents to spend the money wherever they like could lead to more providers entering the market, thereby boosting supply.

I know that some people would argue that the increased money should be used to fund a system of universal childcare. Again, I have some sympathy for this as it does show positive results in some countries, but the evidence appears to suggest that it’s far from clear cut. Essentially, childcare is complicated and parents tend to know what might work best for their children which is another point in favour of direct cash transfers.

We should also ease the burden on parents by making child benefit more generous and ending the cruel two-child limit. The evidence shows that this has exacerbated poverty for families and so should be scrapped by any government with a modicum of compassion and common sense. 

Reforming childcare should be a priority for the government. It would be politically popular, boost productivity, ease the cost of living crisis, and tackle gender inequality.