In response to the Government’s plans to reduce childcare costs to help families with the rising cost of living, new analysis from the IFS examines how much households are paying for formal childcare.
It reveals the disparity in the cost of childcare depending on the age of a child with parents of one and two-year-olds paying the most, how fees vary depending on the area in which families are based, and how take-up rates of policies differ ‘widely’.
The research suggests the range of Government support for early education and childcare in England is ‘often confusing’.
The National Day Nurseries Association (NDNA) said the research proved a ‘complete overhaul of the childcare system is needed’, while the Early Years Alliance argued that it provided further evidence to suggest the funding system is ‘not fit for purpose’.
Key findings from the research, drawn from the 2019 Childcare and Early Years survey of parents, include:
- Over half of families with pre-school-aged children don’t pay anything at all in childcare fees – either because they don’t use formal childcare, or because they use the ‘free entitlement’.
- A quarter of families earning between £20-£30k with a one or two-year-old in formal childcare spend more than £100 a week on childcare - more than 17 per cent of their pre-tax income.
- Middle to high-income households (between £30k and £65k) are more likely to say they find it ‘difficult’ to manage their childcare costs
- The main system supporting the youngest childcare, Tax-Free Childcare, is not functioning well. In 2019, only four-in-ten parents with a pre-school age had heard of the scheme. Nearly 40 per cent of potentially eligible families said they will not apply for the scheme due to the ‘confusing eligibility rules’ or ‘perceived hassle of the application process.’
- Ratios for three and four-year-olds, as opposed to ratios for one and two-year-olds, are considerably looser and much less likely to act as a ‘binding constraint.’
The IFS says more needs to be done to boost take-up of existing schemes.
'Ministers need to think carefully about how to target support to the families who need it most.'
Harriet Olorenshaw, research economist at IFS and an author of the report, said, ‘Childcare costs are a significant expense for some families, and can place real pressure on the budgets of those whose very young children spend lots of time in formal care. If Ministers want to tackle the cost of childcare as part of their response to the cost of living crisis, they need to think carefully about how to target support to the families who need it most.’
Eleanor Ireland, education programme head at the Nuffield Foundation, added, ‘A move towards a fairer and more sustainable funding model needs to be considered in the wider context of who the system is for and how it can make a difference to the children and families who need it most.’
Jonathan Broadbery, director of policy and communications at the National Day Nurseries Association, said, ‘The research by the Institute for Fiscal studies shows just how much pressure parents are under and we know childcare is a big cost for families. The finding that the complexity of support to families is causing confusion and low uptake is not a surprise but shows why we need a complete overhaul of the system
‘Early years settings have been clear that just tinkering with ratios isn’t a “magic bullet” to reduce the cost of childcare. This cohort of Covid born children need more support in their early years, not less. If the Government is serious about tackling this issue head on it needs to fix its own underfunding of the sector. It must also take steps to reduce the cost of delivering childcare through reform of VAT and unfair business rates on nurseries.’
Neil Leitch, chief executive of the Early Years Alliance, commented, ‘The IFS research reiterates our view that any changes to ratios will do little to reduce costs for those who need it most.
‘In the results of our ratios survey, which have been released today, the majority of nurseries and pre-schools surveyed said any changes would fail to significantly financially benefit their settings, once again highlighting that the Government has failed to grasp the needs of both providers and parents when tackling the cost-of-living crisis. Instead, changes will heap unnecessary pressure on early years providers and make it near impossible for them to deliver the same high-quality education and safe care to young children.’
- The analysis, 'The changing cost of childcare', is available here