In its report, Little Britons: Financing Childcare Choice, Policy Exchange argued that funding support for childcare should no longer be linked to employment 'so parents have genuine choice over whether to work or not, rather than when and how to work'.
The allowance of between £50 and £60 a week would go direct to parents from birth or after maternity pay has ceased, until the child starts to use early years services in the first term after their third birthday.
The report said that funding should 'no longer be linked to formal registered care so that those parents who prefer informal care (grandparents, etc) or to look after their babies and toddlers themselves, are also supported'. It would mean a shift away from supply-side funding of instititutions to demand-side funding which would 'follow the child'.
Policy Exchange suggested that if the PCA was successful it could become 'the principal non-schooling payment before compulsory education begins and could be extended to three- to four-year-olds in place of early years entitlement, which currently funds institutions on their behalf'.
Explaining its proposals, the think-tank said that the childcare element of the Working Tax Credit should be abolished because in 2005 'only 223,800 out of over one million eligible single parents claimed it'. Work requirements were 'restrictive' and families had to use Ofsted-registered care, which 'limits parental choice'. It said vouchers should be replaced as 'take-up is extremely limited because so few employers operate the scheme'.
Purnima Tanuku, chief executive of the National Day Nurseries Association, acknowledged that there were problems with the tax credit system but warned that offering a universal PCA to parents to spend on their 'childcare of choice' could 'open up low-quality, unregulated childcare'.
She pointed out that as it would not be means-tested it could not be targeted at those most in need, and she criticised the suggestion that parents could be offered a continuation of the PCA in place of the free early years entitlement for three- and four-year olds. However, she welcomed the report's call for spending on young children to be brought in line with other European countries.
Steve Alexander, chief executive of the Pre-School Learning Alliance, welcomed the report's findings as 'a valuable contribution to inform debate'. While broadly supporting the proposal for a PCA, he said it should be used for registered childcare 'which fits in favourably with the rhythm of family life'.
The Daycare Trust also welcomed the principle of a PCA, but joint chief executive Emma Knights said, 'Daycare Trust has advocated a very similar policy, offering financial support to parents of under-twos. Our plans would also apply whether or not parents worked. The key difference is that our proposal would be paid for with new money.'