Call for universal pre-school funding at end of parental leave

The high cost of childcare means that thousands of mothers are effectively paying to return to work after having children, according to the IPPR, which is calling for universal pre-school to start at the end of parental leave.

The Institute for Public Policy Research (IPPR) said that ‘a complex, patchy and costly’ childcare system and its interaction with the universal credit taper and income taxes was leading to an ‘effective marginal tax rate’ of more than 100 per cent for low-income families.

Low earners face 'staggeringly high' effective tax rates of up to 130 per cent if they work more than 27 hours a week, it said.

To illustrate this, the IPPR gave an example of a family where the partner works 36 hours at the National Living Wage, and the second earner is paid £10.50 an hour.

It assumes childcare costs of £5.50 per hour and that there is no access to free informal care. The 'effective marginal tax rate' of 130 percent is reached when parents work 27 hours or more, at which point increasing hours could lead the household to be worse off due to the combination of childcare costs, benefit withdrawal and income tax and national insurance.

The IPPR’s report, Towards a childcare guarantee, calls on the Government to introduce 15 hours of free childcare for 48 weeks a year, for all pre-school age children, to close the gap between the end of parental leave and the start of the 15- and 30-hours funding. 

Rachel Statham, IPPR associate director and lead author of the report, said, ‘Parents and carers are facing a complex, patchy and costly set of childcare offers. As the cost of living crisis pushes more families into financial stress, rising childcare costs are increasingly unaffordable - and risk pushing parents of young children out of the workforce altogether. 

‘We urgently need reform to simplify and expand childcare provision. It’s time for a childcare guarantee to lower barriers for parents getting back into or getting on in work, to reduce costs for families with children, and to ensure every child has access to high quality early years education.’ 

The report calls for a ‘new childcare guarantee’ and urges the government to: 

• Introduce 15 hours of free childcare for 48 weeks a year, for all pre-school age children, to close the gap between the end of parental leave and the start of free entitlements
• Extend core free hours offer to 30 hours per week for all three and four-year olds, throughout the year – including school holidays. 
• Expand wraparound care through schools to provide activities from 8am-6pm. This could include breakfast clubs, a safe place to study after school, and links to wider family support services. 
• Invest significantly in childcare to expand supply and drive up quality through a new funding settlement for funded hours, alongside a childcare workforce strategy underpinned by higher rates of pay and higher qualifications. 
• Introduce an Affordable Hours Scheme covering 60 or 95 per cent of costs for extra hours of care, depending on household income 

'Fast approaching a catastrophe'

Early years sector organisations backed the report’s findings and call for action.

Purnima Tanuku, chief executive National Day Nurseries Association (NDNA) said, ‘It’s a tragic state of affairs, but we agree with the IPPR’s analysis of this country’s childcare system which does not work for either parents or providers.

‘Children coming into nursery following recent pandemic restrictions now need more support, not less, to help them with communication, language acquisition and personal, social and emotional development. The government’s current idea of tinkering with adult: child ratios for two-year-olds will neither save costs nor benefit our more vulnerable children.

‘Without increasing the investment in early education and care the current policy will not work. Childcare settings will close and parents will be left unable to find affordable childcare.

‘This situation must be fixed before we look at any expansion proposals. However, if the funding model works, expanding support on childcare costs to parents of younger children is the only way to bring their costs down without compromising on the quality of the care and education children receive.

‘Nurseries try to keep their costs to parents down and so absorb some of the shortfall themselves – but cannot go on doing so as they face ever increasing costs on food, energy, staffing and resources. The government must act urgently to protect an essential sector for children’s futures and the wider economy.’

Neil Leitch, CEO of the Early Years Alliance, said, ‘It is extremely concerning, but sadly not at all surprising, that our disjointed childcare and early education system is forcing parents to have to effectively pay to return to work as a result of both high fees and insufficient government support.  

‘Every family should be able to afford and access quality early education and care, and we know that providers are going above and beyond to make this happen – but the harsh reality is that years of severe underfunding have left many with no option but to increase fees just to stay afloat, resulting in a huge financial pressure on families, and particularly those with lower household incomes.’

The IPPR said that costs are  the second highest in the developed world with the average family Britain paying more than £7,000 a year for  part-time care for a child under two (£7,210 a year according to Coram Family and Childcare, 2022).  

Henry Parkes, IPPR senior economist and the report’s co-author, said, ‘Childcare in England isn’t working – for children, parents or providers – while soaring inflation is only making a bad situation worse.

‘On top of this, the current childcare system has now created an environment which disincentivises parents from work. In the midst of a cost-of-living crisis, it is nonsensical and impractical to have families who are worse off in employment. You should not be worse off from working more. The system needs change.’

Leitch added, ‘Time and time again, the sector has urged the government to come up with a long-term plan that includes realistic funding, but these calls continue to fall on deaf ears.

‘Now, as the situation is fast approaching a catastrophe, the government needs to stop sticking its head in the sand and start investing in our vital sector, before the damage becomes irreversible.’ 

• The IPPR report, Towards a childcare guarantee, is available here