IPPR finds £1 billion shortfall in 30-hour childcare pledge

According to think tank IPPR, the Government has underestimated the cost of doubling the free hours for three and four-year-olds by £1 billion a year.

In its new report, it warns that the shortfall could drive down childcare quality and leave the needs of working families unmet, with poorer outcomes for children and less choice for parents as the market shrinks.

The Government has allocated £365 million to the extension of the free hours for the first full year (2017-18), rising to £670 million in 2020/21.

However, the IPPR says that the policy will cost £1.6 billion in 2017/18 – a billion more than estimated.

The think tank points out that Scottish government costed a similiar proposal at £880m plus aditional capital funding. It says there are four times as many children eligible for the 30 hours in England than in Scotland

While the IPPR’s calculations, outlined in its new report, ‘Extending the Early Years Entitlement – Costings, Concerns and Alternatives’, do not take into account potential savings that the Government could achieve by reducing the amount of childcare support claimed under Tax Credits or Universal Credit, it says these savings are likely to be small.

It goes on to raise concerns that given the degree of the underfunding of the 30 free hours, the Government will be tempted to cut costs in ways that will reduce the quality of childcare, such as changing adult:child ratios, without giving consideration to the impact the changes will have on children and families.

It warns that this could force providers to reduce services or refuse to offer the free hours, leading to a less flexible market, reduced parental choice and costs for paid hours increased. It says that families in poorer areas would be hit hardest, with fewer and less flexible local providers, and may be forced to adjust their working hours.

The IPPR, which critises the Government for announcing its budget before the Department for Education review into the costs of delivering the free places, is now calling on the chancellor George Osborne to commit additional funding to the policy in the November Spending Review.

It also claims that the budget does not take into account increases in the minimum wage.

The IPPR 's report concludes by setting out ways childcare provision could be improved through the Spending Review. These include:

  • Making the two-year-old offer universal. Currently only the 40 per cent most disadvantaged are  eligible for the free hours;
  • Expanding the number of weeks the free hours can be taken from 38 to 48 weeks per year for the 40 per cent more disadvantaged two- to four-year-olds, allowing working families to cover their holiday care;
  • Protecting and extending parental leave, improving access to flexible working and removing financial disincentives for second earners under Universal Credit.

Giselle Cory, author of the report and a senior research fellow at the IPPR, said, ‘The Government should be applauded for its commitment to additional free childcare hours, but the drastic underfunding of the policy calls into question whether it can be delivered without driving down quality and choice. When councils are already struggling to fund sufficient childcare provision on current hourly rates we know there is a problem: the £1 billion shortfall in delivering the extension will make a bad situation worse.

‘At a time when parents desperately need high-quality care for their children, it is clear the current system is creaking at the seams even before it tries to cope with delivering extra free hours with less than a quarter of the cash we believe it requires. The Government must prioritise properly funded childcare provision to meet demand, and ensure there that standards do not fall.

‘The Department for Education review into hourly childcare provider rates must have a good understanding of provider costs, and any rise in rates fully reflected in the funding of the free childcare extension.’

A Department for Education spokesperson said, 'We know that childcare is one of the biggest issues affecting parents. This is why we are working closely with the sector to deliver 30 hours of free childcare, and innovative childcare providers are being asked to come forward as the first in the country to deliver it from September 2016.
'We have committed substantial additional funding for the extended offer, and we have already committed to raising the average hourly rate providers receive for delivering it. We are conducting a review of childcare costs to inform a new rate that is fair for providers and delivers value for money for the taxpayer. This will report later this autumn.'

Neil Leitch, chief executive of the Pre-school Learning Alliance, said, 'We warmly welcome the report from IPPR, which echoes many of the concerns that the Alliance has previously raised about the planned extension of the free entitlement scheme for eligible three- and four-year-olds.
'It is clear that, as stated in the report, this 30 hours offer has been significantly undercosted. Independent research commissioned by the Alliance earlier this year found that the cost of this pledge would be approximately £1.6bn, a figure matched by IPPR’s own estimates. In fact, only last year, the childcare minister estimated that the cost of Labour’s plans to extend the free entitlement to 25 hours a week would cost ‘£1.5bn, at least’. It is impossible, then, to understand how the Government can argue that its current estimate of the cost of the scheme - £350m, eventually rising to £670m – will be anywhere near sufficient, especially given that that it has not yet accounted for the planned increase in funding rates.
'We also share the report’s concerns about the impact that this policy may have on quality. Given the level of underfunding, it is likely that changes to childcare regulations would be necessary to enable Government to deliver the promised hours at a much cheaper cost – and with the primary focus of the plans on getting parents back to work, rather than giving children the best start in life, it would not be surprising if Government opted to go down this route.
'With the Spending Review imminent, it is vital that the Department for Education now looks to ensure that the 30 hours pledge is delivered without threatening the sustainability of providers or the quality of the provision that they deliver – an aim that can simply only be achieved through adequate funding.'

Purnima Tanuku, chief executive of the National Day Nurseries Association, said, 'Successfully extending the free hours scheme hinges on allocating sufficient funds to providers and the funding settlement in November's Spending Review must include a meaningful uplift.
'IPPR has proposed further extension of the two-year-old offer. For more children to benefit from funded places, we must have a sound funding system in place that enables providers to deliver high quality places sustainably.'

Liz Bayram, chief executive of the Professional Association for Childcare
and Early Years (PACEY), said, 'The concerns raised in the IPPR's briefing mirror those expressed by PACEY in our Building Blocks report published earlier this year.

'We agree with the IPPR that the successful delivery of the Government's
ambitious plan to expand free childcare depend on ensuring it is adequately funded. We also believe that the government should commit to a regular and ongoing review of the true costs of providing childcare.

Our members tell us that flexibility is so important for the families
they work with, so we welcome the IPPR¹s call for extending the free offer to cover holidays. Many of our members offer care flexibly throughout the week, and across the whole year, and this reflects the realities of what it means to be a working parent.'

She added, 'The Government will recall just how passionately both providers and parents feel about ratios. We echo calls from peers during the House of Lords debates on the Childcare Bill to ensure that current ratios are protected.'

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