Treasury Committee calls for action on 30 hours underfunding in scathing assessment of policy

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A new Treasury Committee report strongly recommends an increase in 30 hours funding rates as it sets out wide-ranging criticisms of current Government childcare policies.


Committee Chair Nicky Morgan

Published today, the Committee’s 'Report on Childcare', which is based upon evidence from the Treasury, HMRC and sector organisations, makes a series of recommendations to improve the Government’s childcare policies, and says it has no evidence that they will improve productivity. Recommendations are to:

  • Pay a higher hourly rate to local authorities for the 30 hours entitlement
  • Remove age restrictions on childcare support for parents in training to improve productivity
  • Keep the childcare voucher scheme open until ‘winners’ and ‘losers’ of discontinuing it are known
  • Improve awareness of the Tax-Free Childcare scheme and the quality of the website.

30 hours

In its report, the Committee, which is chaired by former education secretary Nicky Morgan MP, argues that funding for the 30 hours is based on out-of-date wage data from 2013 and rent and other overhead costs from a survey carried out in 2012. The stated average rate of £4.94 per hour is 'misleading' says the Committee, as it excludes the proportion retained by local authorities and includes some schemes such as Early Years Pupil Premium.

It says that it has not seen any evidence to justify the evidence of chief secretary to the Treasury Liz Truss MP that increases in the National Living Wage have been factored into the hourly rates provided by Government to local authorities and childcare providers. The report also finds it it highly likely that increases in other costs, such as auto-enrolment pensions and business rates, have not been factored into Government hourly rates.

The Committee stresses that Government must ensure the hourly rate paid to providers reflects their current costs and the hourly rate is updated annually in line with costs increases.

It states, ‘Setting the funding level with reference to wage and overheads data that is more than five years old is unsatisfactory.’

The report goes on to warn that because providers are altering their provision in response to the 30 hours in ways that were unseen when the scheme was designed – restricting times funded hours can be taken, cutting back on higher-qualified staff and charging for services that were previously free, it may undermine the Government’s overarching policy objectives and disadvantage those in more deprived areas.

The Committee says these consequences could be avoided were the Government to pay a higher hourly rate to providers and ensure all money given to local authorities is passed on.

The Committee also recommends making children eligible for the 30 hours as soon as they turn three, rather than the term after their third birthday. It says there is ‘no justification’ for delaying the entitlement, which unreasonably disadvantages parents of children who happen to have been born early in an academic term, particularly those looking to go back to work.

Parents in education

The Committee argues that the absence of proper support for childcare costs currently is a deterrent for most parents wanting to enter training or education. It says that many parents may need to retrain in order to return to work after having children.

At present, parents aged 20 or over who wish to take on training can only seek support for childcare if they are on a further education course, are facing hardship and the cost of childcare is a barrier to their participation in the course. Parents under 20 studying on a publicly funded course can claim up to £160 per week towards childcare costs (£175 per week in London).

Parents in education/training are also ineligible for the 30 hours of funded childcare if they don't work.

The Committee says that failing to extend childcare to parents who need to take on such retraining is ‘short-sighted’. It recommends the Government consider removing age restrictions and expand the courses that qualify for childcare support to include courses that individuals or companies finance themselves, including English language training.

Childcare vouchers

While the Committee welcomes the move by the Government to extend the deadline by which new parents can apply for childcare vouchers, it says the ‘Eleventh-hour U-turn’ may have been too late for some parents who had already made alternative arrangements.

It goes on to recommend that childcare vouchers be kept open to new parents until the Government has carried out its review of Tax-Free Childcare (TFC) and determines who is better and worse off under TFC than vouchers.

Looking at the long-term, the Committee says that if vouchers are kept open to new parents, there would be good reason for their reform as some employers don’t offer vouchers to parents and they are not available to the self-employed.

Tax-Free Childcare

The Committee suggests the reason take-up of Tax-Free Childcare (TFC) is 90 per cent lower than initially expected is down to low awareness of the scheme among parents and because the website was repeatedly down throughout the summer and was often closed for maintenance, which it says is ‘unacceptable'.

The report states, ‘The Tax-Free Childcare website was intended to be available to parents in preparation for the start of the new school term in September 2017. But it failed consistently throughout the summer, causing stress and inconvenience to thousands. Having to close a system for repeated maintenance so soon after it has gone live is unacceptable.

‘The Government should only launch websites when they are satisfied they are able to cope with the workload expected of them. If beta testing phases are necessary, Government should plan these so that problems can be resolved prior to full launch.’

Chair's comments

Nicky Morgan said, ‘The Committee has heard no evidence that the Government’s childcare policy will improve the UK’s productivity. More research by the Treasury on whether the cost to the taxpayer of childcare support is outweighed by the economic benefits would be welcome.

‘One possible way to improve productivity is to remove the age restrictions on childcare support for parents entering training or education. Many parents may need to retrain or upskill to return to work after having children. It is therefore short sighted for the Government to exclude such parents from receiving such childcare support.

‘The Government’s 11th hour stay of execution for the childcare voucher scheme is poor management of childcare policy. There will be winners and losers of the Government’s decision to move towards Tax-Free Childcare. The Government should keep the voucher scheme open until it understands the extent to which parents will be made better or worse off as a result of discontinuing the scheme.

‘On funding, the jury is still out. The Government’s own figures on how much it provides per hour to fund 30-hours free childcare are often misleading and out of date. One estimate suggests that there would be a total sector-wide shortfall of over £157 million per year from 2017-18.

‘As a result, some childcare providers are altering their services, potentially redistributing resources away from low income parents towards higher income parents. If the Government wants to avoid these consequences, it should pay a higher hourly rate to providers that more accurately reflects their current costs.’

Sector comments

The Pre-school Learning Alliance said the report painted a stark picture of the state of the Government’s childcare policy, but it is one that parents and providers are familiar with.

Chief executive Neil Leitch said, ‘The report makes clear that the Government’s current calculations of how much it costs to provide high quality childcare are way off. And, while the Alliance has been saying this since before the 30 hours policy was rolled out last year, there’s little satisfaction to be taken from the committee’s agreement when every week we hear of more passionate providers being forced to close.

‘The committee’s recommendation of an annual update of the funding rate signals the appearance of a broad consensus between families, practitioners and politicians. There can be few people left outside of the government who are not fearful that this flagship childcare policy will fail if the government does not take action, starting with the implementation of the recommendations made by the select committee today.’

He added, ‘We share the committee’s concerns about the take up of Tax-Free Childcare and the premature closure of the childcare voucher scheme.

‘We would echo the committee’s call for ministers to use this time to consider whether Tax-Free Childcare alone is the best means of supporting as many families as possible with childcare costs.’

Liz Bayram, chief executive of the Professional Association for Childcare and Early years (PACEY), said,PACEY is pleased the Treasury Committee has recognised the ongoing challenges of delivering 30 hours of funded early education. Parents and providers both want children to benefit from high quality early education, but the low funding rates, delayed payments and red tape that we highlighted in our submission are all preventing this from happening. Some local authorities are doing a great job of working with providers to offer sustainable places to local families, but many are not.

‘We hope the Committee’s recommendations will be taken seriously by Government. They are key to ensuring Government- funded early education is a success in every local area.’

Ellen Broomé, chief executive of Family and Childcare Trust, said, 'For too long, childcare support for training has been patchy with many parents at risk of falling through the gaps of a piecemeal system. This is a missed opportunity to boost social mobility by supporting parents to raise their skills and family income, as the Treasury Select Committee report rightly recognises. Extending free childcare for three and four-year-olds to children with parents in training, rather than just work, would be a good place to start.

'The doubling of free childcare for three and four-year-olds has been popular with parents who are eligible, but many childcare providers have raised concerns about the funding rate. Government must continue to gather evidence on the cost of high-quality childcare and make sure that funding rates match this.'

Steven McIntosh, Save the Children's director of UK Poverty Policy, Advocacy and Campaigns, said,  The report shines a light on a costly and confusing childcare system which is struggling to recruit skilled nursery staff - letting down parents and young children.
'The Committee has pinpointed why parents say that childcare is still the number one barrier to work. MPs have called on the government to address both the ‘overwhelming’ complexity of childcare and fundamental flaws in how the government plans to support low income families with childcare bills. Unless the government takes urgent action there is a risk that, under Universal Credit, low-income parents will face upfront costs that they can’t afford to pay. This could even stop them from going back to work. 
'The Committee’s finding that childcare providers are cutting back on higher-qualified staff due to funding is also hugely worrying. Poorer children are almost twice as likely to have fallen behind when they start school, but the government is failing to recruit enough skilled early years teachers who play a decisive role in closing this pre-school learning gap.
'The Government has made some important reforms to childcare, but they must now urgently set out the next steps to deliver the good quality, affordable support parents need to work and make childcare an engine of social mobility for the poorest children.'

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA) said, 'NDNA welcomes this report which states clearly that ‘free’ childcare is not adequately funded. This is something NDNA has been saying for years and evidenced in our annual survey reports.

'It is also helpful that the Treasury Select Committee highlights that funding rates have not kept pace with real increases of National Living and Minimum Wages, business rates rises and pension costs. For many of our members, this gap in funding could cause them to be unsustainable as businesses.

'If the hourly rates covered providers’ costs, nurseries could afford to be more flexible in the way they deliver 30 hours to parents, which would be a huge benefit to all parties.

'We also agree with the select committee’s conclusion about the lack of awareness of Tax-Free Childcare and consequently recommending the voucher scheme remain open for the time being. As part of the implementation advisory forum, NDNA has been repeatedly asked to put out information on behalf of HMRC when they should be communicating this directly to parents, not via the nurseries. Our members have told us that administering Tax-Free Childcare is complex and fraught with problems.

'We hope that the Government takes note of this inquiry report and puts the correct investment in place to fully fund the 30 hours scheme and support providers with the current crisis of recruitment and retention of qualified staff.'

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