Low-earners’ bad deal

Natalie Perera, executive director and head of research, Education Policy Institute
Monday, March 20, 2017

Natalie Perera looks at the detail behind the Government's much-quoted £6 billion childcare spending figure

In his Budget, the Chancellor confirmed that Government spending on childcare will have reached £6bn per year by the end of this parliament.

This represents a significant increase since 1997-98 when, according to recent research published by the Institute for Fiscal Studies (IFS), spending on early years stood at just under £1bn (in 2016-17 prices). But this masks some of the consequences that have emerged as a result of successive governments’ policies.

The IFS finds that spending per three- and four-year-old (for the free entitlement) almost trebled in real terms between 1998/99 and 2008/09, but then fell by 17 per cent between 2008/09 and 2015/16. This seems to have been caused by an increase in the number of three- and four-year-olds over that period, which was not matched by increases to the total funding pot. In 2015/16, spending per three- and four-year-old was around £1,720 – very similar to the levels last seen in 2003/04.

The overall £6bn also includes funding for children’s centres and demand-side subsidies such as the childcare element of the working tax credit and tax-free employer vouchers. However, since 2010/11, spending on the childcare element of the working tax credit has fallen by around 31 per cent in real terms and spending on children’s centres by around 35 per cent. Real terms spending on employer vouchers, however, increased by 50 per cent since 2010/11.

From this year, Tax-Free Childcare will come into effect, allowing working families to receive up to £2,000 per child each year towards the cost of childcare, as will the 30 hour entitlement to free childcare for working parents.

Research conducted by the Education Policy Institute last year found that, once these new subsidies (plus Universal Credit) are rolled out, the Government’s policies are likely to have a greater benefit for those on higher incomes. A two-parent family earning £19,000 per year could receive 20 per cent less than a two-parent family with annual earnings of £100,000.

These decisions suggest recent governments have prioritised childcare over early education. Despite the increase in investment overall, current early education funding per child is down in real terms (posing a distinct threat to the quality of provision), preventative services have been cut, and new investment is set to benefit disproportionately higher-income families.

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