Revised

Members present

Lord Sutherland of Houndwood (Chairman)

Baroness Gould of Potternewton

Baroness Morris of Bolton

Baroness Neville-Rolfe

Baroness Noakes

Lord Patel

Lord Sawyer

Baroness Shephard of Northwold

Baroness Tyler of Enfield

Baroness Walmsley

________________

Examination of Witnesses

Olivia McLeod, Director for Early Years and Childcare, Department for Education, Jacob Soper, Deputy Director for Universal Credit Strategy, Department for Work and Pensions, and Tom Smith, Director of Customer, Strategy and Change Policy for Tax Credits and Child Benefits, Her Majesty’s Revenue and Customs

Q1 The Chairman: Welcome. Thank you very much for agreeing to turn up. Three of the four invited have done so. One, apparently, has not. His department thinks it is inappropriate. We will be taking that up. However, we are delighted to have you here. You all have vast expertise. You know what the range of this inquiry is and we are trying to ensure that it is within the bounds of what can be completed before the end of the session and, therefore, published before the general election. We know that all the parties have an interest in these topics so that is our aim. This is the first public session.

My name is Sutherland. You see all the names around the table, so I shall not go around in detail. But I also declare that I have no formal interests in this, other than grandchildren and things like that, which brings an informal interest that is all consuming but no formal declaration of interest. I am very keen to turn straight to the questions, if you are happy with that. If I may, I would like to lead off—this is for the DfE, for Olivia McLeod initially—with a question of why the Government has made affordable childcare a priority and that has been across Governments, we understand that, not just with the current Government. Is it a priority shared by all departments, including your own?

Olivia McLeod: Yes. Very well, thank you very much. Can I say, first of all, thank you for having this session and for inviting us and for making it on this day, which is my last day before I go on maternity leave?

The Chairman: You have an interest, you have declared it.

Olivia McLeod: I have a vested interest, I should say, to declare in this policy but we are all very pleased to be here to talk about this.

The Chairman: Sorry, I should have reminded you all of one other thing, we are on camera and this is being webcast live and a record is taken of the proceedings that will be published.

Olivia McLeod: I rather wish you had not reminded me of that but thank you. Yes, I can absolutely confirm that this is an absolute priority, obviously for my department but also for departments across Government. Clearly, there are many reasons why you would want to invest in good quality affordable childcare. DfE has a particular interest on the impact on children’s outcomes and we know there is a very strong body of evidence that supports the impact of good childcare on children’s outcomes and that lasts right through to adulthood.

But we also know that supporting maternal employment helps children too. We know from the evidence that the best way to get children out of poverty is through employment, that children in workless households are much more likely to be in poverty and, therefore, by investing in childcare and supporting mothers to work that also not only benefits mothers but also benefits children. That is why we have a shared agenda here that is both about children’s outcomes and about employability as well.

The Chairman: I will just ask a minor supplementary and then I will ask Baroness Gould to come in. How well co-ordinated is the thinking in the department about this with the thinking in the department on preschools, on schooling and so on?

Olivia McLeod: Yes, I am sure we will come on to the fact that one of our big priorities in terms of early years is getting schools more involved in delivering early education because we know schools are where there is high-quality graduate-led provision at capacity, at scale rather. Also, the parents really value being able to go to school-based nurseries and obviously when they have older children that is a convenience thing, as well as a quality choice. We are increasingly working across the department. For example, we have recently put out new guidance to schools about setting up nurseries.

We are making sure that when we are talking to schools about anything in their roles of responsibility we are talking about the benefits of early education. For example, we have around 50 demonstration projects operating at the moment of schools that are taking 2 year-olds, which is clearly supportive of the wider agenda of getting schools more involved in the early years but then supports a delivery of the very important 2 year-old entitlement that came in last September. Absolutely, we are taking advantage of the fact we have schools in early years in the same department and making the most of the opportunities that affords.

The Chairman: Will your survey of these 50-schools project be published?

Olivia McLeod: We have in fact published the first outcome of that evaluation, I am pretty certain. What it showed is lots of learning going on for schools. Obviously it is important that that provision is age appropriate. I know people have concerns about whether schools can serve the needs of much younger children but what we are talking about here is nursery provision within school sites with specialist early educators involved. It is ensuring appropriate provision for that age group.

The Chairman: Yes, we have visions of stern interrogators saying, “And when did you last see your 9 times table?”

Olivia McLeod: Yes, exactly.

Q2 Baroness Gould of Potternewton: My only declaration of interest is that over many years I worked with childcare organisations. One of the things that I am very keen about is process and how things come to be. I am sorry you are only three departments and not four but, nevertheless, you all have differing responsibilities for the end product. I wonder whether you can tell us how that works. What is the process that brings you all together? What is the mechanism that is used, which ultimately arrives as a policy for Government? I ask all three of you.

Olivia McLeod: Our interest obviously in the Department for Education is primarily about the child outcomes and so we are responsible for the early education entitlement and for the funding of that through the Dedicated Schools Grant. But we work very closely with our colleagues on the demand side support for parents who are choosing then to work beyond the entitlement.

For example, on the work that went into developing tax-free childcare and developing the changes around the tax credit system we have working groups that involve all of our departments to make sure that every perspective is taken into account. For example, Tom and I were together only last week on a programme board that I chair, which is about the 2 year-old entitlement. One of the things we talk about is how we make sure that, through the information that goes out on tax credits, parents know about their entitlement to the 2 year-old offer.

Health is also at that table and we will be working with it about how health visitors can talk to parents about the 2 year-old offer. We try to integrate it both in policy development terms but then also when it comes to delivery, making sure that all of our separate delivery vehicles are supporting the same agenda.

Tom Smith: Exactly. The phrase that we are hearing increasingly in Government at the moment is customer journeys and what we try to do is make sure that we try to look at it from the perspective of someone who uses, whether it is DfE provision, tax credits, Universal Credit, as increasingly will be tax-free childcare. Our teams get together very, very closely to make sure that there are no incompatibilities with the different types of legislation that lead to perverse outcomes. We also get together to identify those hard cases where one set of procedures seem to drive people to do one thing and one to do another thing. We work quite exhaustively to try to iron those out.

Jacob Soper: Part of the question you are asking me is how we work together, literally day to day. I was leading on Universal Credit within policy development in DWP, particularly looking at childcare and meeting regularly with my colleagues in the Department for Education, in the Treasury and HMRC on a weekly basis. We work closely together and it is the customer journey that is driving that. It is consideration of what this is going to look like when someone walks through the door and tries to access the support.

Baroness Gould of Potternewton: You mentioned the question of working parties. There are a number of working parties. It would be very useful to know what they all are. Maybe you do not want to answer it now but if you could let us know what all the working parties are and what the remit of the working parties is.

Olivia McLeod: Yes, sure. It would impossible for me to keep them all in my head. I know the ones that I am involved in but there are a great many, obviously at different levels, through the organisation. Of course, on the other end of it as well—that we will no doubt talk about—we are doing some major research in the department. One of the things we want to ensure is that when we are doing that research we design it in a way that picks up issues for other departments.

For example, with regard to the study of Early Education and Development, which is our major longitudinal study on outcomes for children of early education, we have someone from DWP on the group that is designing that study to ensure that we are capturing information that is useful to them about the impact on maternal outcomes. Right through the process, from the start to the end, it is important obviously that we are joined up. But, no, I am sure we can give you a list without killing too many trees.

Baroness Gould of Potternewton: Thank you very much.

Q3 Baroness Tyler of Enfield: I declare an interest. I am President of the National Children’s Bureau and I have just recalled the fact that I chaired the Liberal Democrats Working Group on A Balanced Working Life that produced a raft of recommendations on childcare. I should like to pursue this question about how Government policy is co-ordinated and your responses, which were very helpful. You focused mainly on delivery and you made reference to the customer journey.

I am interested to know how some of the big-picture policy decisions are co-ordinated across Government. I am thinking of things like the trade-offs between affordable childcare and the quality or where to invest Government money as between demand side incentives and supply side. I am presuming that Ministers get involved in these big policy decisions. What is the mechanism for Ministers to get involved in these big-picture policy decisions on childcare?

Olivia McLeod: Yes, absolutely, you are right. It is Ministers that would set that high-level direction and obviously the most recent vehicle for doing that was the Childcare Commission that ran—I cannot remember the dates exactly—around the turn of 2010/2011 or maybe the following year. Anyway I can clarify that. But the Childcare Commission was a large scale piece of policy evaluation and a huge amount of evidence gathering as part of that, which I think was led by the DfE Minister and the DWP Minister jointly and possibly another Minister. I am not sure. I would need to confirm that.

It was through both the commissioning and gathering of evidence and the consideration of what was coming out of that that Ministers took the views about policies that led to, in this case, more great childcare and more affordable childcare. That is just an example of the kind of vehicle that allows Ministers to do that sort of big-picture thinking. It is fair to say that we are all, at this point, largely in delivery mode because of the way Ministers have agreed their policies. That is perhaps why we are quite focused on that end of things but clearly it is important that those debates happen about some of the bigger picture stuff. We expect that these things rather go in cycles so that will come around again no doubt.

Q4 Baroness Morris of Bolton: You have rather asked the question I was going to ask later when we came to costs. I thought rather than having to repeat it later we might as well build on it now. I declare my interest. I was a governor of Bolton School and I was very involved in setting up our nursery and in recruiting. I was also the Shadow Minister for Children, Schools and Families during the previous Labour Government. I have read somewhere that staff costs are somewhere around 77% of the costs of providers and we are talking about driving up quality by better qualified staff. We are for ever telling people that if you get better qualifications you will earn more. In this policy that you have just been talking about and the Commission, how are the tensions between lowering costs at a time when we are trying to drive up the quality? This is probably going to increase the cost for providers and how is that addressed in policy?

Olivia McLeod: Yes, it is a real conundrum because you are absolutely right. The real priority for us, in particular, is to get more graduates into childcare because we know from the evidence that graduate-led practice makes the biggest difference in terms of benefits to children and particularly the most disadvantaged children. That is why we have recently introduced the new early years teacher qualification, which is an absolutely equivalent standard. A teacher of the age range has similar entrance requirements and has a similar standard in terms of ITT, Initial Teacher Training, and who delivers that.

It is a very high quality qualification that we have early years teachers going through now. In terms of how do you balance then the cost of that, this is a question of scale and this is why we are so interested in building the role of schools. Schools have the scale to be able to employ teachers who can then unlock the 1:13 ratio and also obviously the overhead costs that a school faces are very different from those of the small providers that characterise the PVI markets. Therefore, it means that schools are able to employ graduates and by operating the 1:13 ratio bring in enough revenue to make that affordable.

We know the challenge for those very small providers to employ quality staff without that impacting on their costs. That is why we are very much encouraging providers to join up together and collaborate. Group providers—around 22% of PVI providers are groups or chains—tend to score better in terms of Ofsted ratings and they have high proportions of graduates. This scale means that they can work the higher ratios and, therefore, bring in enough income to support that higher salary. Does that make sense? It is a quite complex interaction.

Baroness Morris of Bolton: Yes, we are almost presumably going to see the end of the small PVI provider.

Olivia McLeod: That is interesting because, of course, parents like that very local, very personal offer. It is not necessarily about big monolithic chains at all but it is about collaboration and so we are very keen to support providers to grow with us. For example, Bain Consultancy did some analysis for a PVI provider that showed that 50 children is the minimum level that you need in order to be profitable and enable you to have the infrastructure that allows for qualified staff.

That provider responded to that by looking at the configuration of their nurseries and seeing how they could model it in that way. We are obviously trying to make it easier for providers to grow by cutting some of the red tape, by providing capital support––those kinds of issues. But we are also encouraging providers to collaborate and that includes between PVIs and schools. We have some good examples of where PVIs and schools are working together and, therefore, getting the benefit of that broader infrastructure and being able to, for example, use an early years teacher across settings without necessarily massively adding to their costs or indeed losing that personal local nature that is so important to parents.

Just to take childminders, because obviously the childminder is the most small of small in that respect. We have introduced childminder agencies, which are, again, not about taking away from the very personal relationship with the childminder, which is what parents value but allowing for the economies of scale, which means a childminder can access high quality training and can access support. Indeed, a parent can be assured that there is that ongoing support and challenge from the agency without losing what it is that makes a childminder a childminder, which is obviously very personal.

Q5 Baroness Walmsley: I also have to declare that I was on the A Balance to Working Life policy working party for the Lib Dems. In fact I wrote the piece about childcare and I have non-financial links with a wide range of children’s organisations. I started off by wanting to ask you one question and you have just given me two more, so I am going to ask them all and they are very quick. First, if the financial support of childcare was not so complicated, does it not occur to anybody that you would not need all these working parties for all the departments to work together? Simplifying the system would avoid the need for all this work that must take a heck of a lot of hours of civil servants’ time. Secondly, if the NQT qualification is so equivalent to a qualified teacher, why do they not have qualified teacher status? Thirdly, it sounds to me as if you are trying to push up ratios again, despite the explosion of objection from the sector last time you tried to do it.

The Chairman: Could I ask you to take question one and maybe questions two and three a little bit later because some of them shade into other questions?

Olivia McLeod: Okay. Let me try to explain the rationale for why we have three different routes for funding or at least perhaps I could explain the rationale for early education and then Tom can talk about the other two. Principally, the funding that we put through the Dedicated Schools Grant pays for the early education entitlement for 3 and 4 year-olds and for 20% and soon to be 40% of the most disadvantaged 2 year-olds. We think about that as being the absolute core that every child deserves and every child can benefit from in terms of early education to prepare them for success in later life. That is what the evidence suggests is the core that can make that difference.

From a department’s point of view that is what we think is the right thing for every child to benefit from and, therefore, an entitlement of that obviously goes through local authorities to providers. We are working to make sure that that route to providers is as direct as possible, so as much of the money as possible goes straight to providers for them to offer a quality service for children. Then you get into the question of parents who choose to work beyond that and want childcare. That is where Tom can come in.

Tom Smith: Exactly, yes. The scheme that we operate in HMRC and the one that we will operate in the form of tax-free childcare is a slightly different solution to a slightly different issue, which is the recognition that there is some merit in giving financial incentives for working parents who wish to work longer or parents who do not currently work but wish to work and increase the level of participation in the economy.

If you try to put all this together into a single scheme then you would probably end up creating different problems in terms of co-ordination. Yes, we do talk to each other. It is not something that stops us getting on with doing the job.

Jacob Soper: Can I just add something on the Universal Credit side and whether it will make things more complicated. One of the things that has come through quite a lot from discussions we have had with stakeholders is that Universal Credit itself will make support for childcare simpler for people.

The Chairman: We hope so but could I suggest that the issue of NQT status is important? Maybe you could let us have a written note on that to clarify just what the position is. We have one more taker on this one. We are in danger of spending the whole time on our first question but if we could just pick this one up from Baroness Shephard we will move on to a number of others we have.

Baroness Shephard of Northwold: Yes, just a request, Lord Chairman. I will declare my most current interest, which is that I am Deputy Chair of the Social Mobility and Child Poverty Commission. You have already agreed that you are going to give us a wiring diagram of the interrelationship between departments on these issues. I do hope that you will include the Treasury in the wiring diagram because all of us have seen this morning a copy of The House magazine where we are told that the Treasury has a Minister in charge of childcare. I do hope that that will not be omitted from the wiring diagram.

The Chairman: Thank you, a very helpful point.

Q6 Lord Sawyer: I have two brief questions. You talked previously about the customer journey? Do you feel in any way responsible for finding out how the customers feel about that journey or do you think that is for other people to determine?

Tom Smith: Absolutely, we are very interested in that. For example, on tax credits, which is the bit I am most engaged with, we do an annual survey that takes people through all of the key questions as to how they find tax credits and from how they respond to it we build up an evidence base over the years. I am sure Jacob would want to say something similar about Universal Credit.

Jacob Soper: Absolutely, yes. We talk to representatives from parents and from people with children. We talk to people themselves about what they think these changes are going to mean and that is not necessarily a straightforward thing to do. We spend time and effort. W get experts to bring people in and have discussions, have focus groups and have workshops that look at what changes to the customer journey are going to mean.

Tom Smith: This includes liaising with people like Citizens Advice and the Low Incomes Tax Reform Group who we meet on a very regular basis.

Olivia McLeod: Yes, absolutely. One of the things that we know is a challenge around the delivery of the 2 year-old offer is about parental demand and trying to understand the complex mix of reasons why parents do not want to take up a free entitlement. We have already done quite a bit of work to tease that out and we are planning to do some more. We have also done some work around information to parents because we know one of the challenges is how parents find out about childcare and how they make choices. We commissioned some work from Ipsos MORI to understand that and we will be publishing that shortly I believe.

Lord Sawyer: Is it mostly published, is it? Do you all publish it?

Tom Smith: Our research?

Lord Sawyer: Yes.

Olivia McLeod: We have a parent survey that we publish. I think it is every two years.

Lord Sawyer: We might want to come back to that—

Olivia McLeod: Yes, we could certainly come back to you with what we have on the parent perspective.

Lord Sawyer: Yes. I will talk to the Chairman and any other Members about this but we might want to come back and have a look at that. I turn to my second question. When we think about this issue we think about the dual objectives of child development, which we started to talk about this morning, and also this different objective of enabling parents to work. How do you go about balancing these two things? Do you look at them independently or—

Tom Smith: The view that we take across the piece is that they do not conflict. We each operate provisions that pursue the two different directions in differing ways. For example, the prime focus of the tax credit childcare element is in terms of helping parents who want to work to work. But, clearly, that is not saying that as a Government we do not care about the potential impact of tax credits on the early learning.

Olivia McLeod: Just to give an example of how we safeguard that. You cannot use your tax credits or indeed your voucher in childcare that is not subject to registration by Ofsted. It does not have to follow the Early Years Foundation Stage. There is a quality lock in any investment, so it is not a case of saying that the early education entitlement that is funded by us through the Dedicated Schools Grant is somehow a quality piece and then for your childcare you can buy any old thing. The quality lock of EYFS and the rigorous inspection applies right across the piece. That is one way we ensure that the two do not become out of balance and that children’s needs are always at the forefront.

The Chairman: There is an interesting shift going on here in your language. Tom Smith said the two objectives do not conflict. Olivia McLeod says the two are kept in balance. These are very different. In the end they do not conflict if you have enough money to keep them happily in balance but if, as we are, short of cash there is almost bound to be at least a tension.

Olivia McLeod: Yes, though I do think it does come back to this thing about what models of delivery we are promoting. It is the complex situation I was talking about before. The holy grail of being able to be both better quality and lower cost is possible in Early Years. IPPR did some analysis recently where they showed that—I will just look down to my notes so I get it right—if childcare providers with two highly-paid early years teachers took on an additional two children per staff member, they could charge parents 25% less per child and still increase their revenue. That is because of the current graduate ratio— the existing 1:13 ratio for graduates that operates in schools routinely. This is not in any way trying to revisit changes to ratios because we completely accept that that argument has passed. It means that you can take more children because you have the degree of qualification to deal with that.

The Chairman: I can see how that discussion goes. I was more concerned about the conflict between having a priority of families and women into work, which, effectively, it is on the one hand and child development on the other.

Olivia McLeod: But I suppose what I was saying by using that example is that it is possible to make childcare more affordable for parents and, therefore, encourage them into work, although we know there is a range of reasons why parents go into work. It is not just about affordability. That then means you can support both objectives together.

Jacob Soper: In a way this comes back to our earlier question about the big picture. There is a strategic narrative that underpins this. If you are talking about what Universal Credit is trying to achieve in terms of working to eliminate child poverty, there is a strategic underpin here that says work is the best route out of poverty and also we know that better attainment improves child poverty outcomes. That strategic narrative sits underneath the discussions we are having at official level when we are thinking about the way we want to structure these policies. These are conversations we have regularly.

The Chairman: I want to move on. I will just leave the comment that strategic narrative can sometimes be a substitute for hard choices. I just make that as a statement.

Q7 Baroness Shephard of Northwold: I feel, Lord Chairman, that we have definitely tackled many of the issues in my question, which I will give you. What is the rationale between the combination of free provision on the one hand and subsidies to parents such as tax credits, and soon Universal Credit and vouchers, on the other hand. Do add anything you would like to what has already been said. I think most people who have been in Government will know that Governments inherit situations that they then attempt to improve if they can. That is certainly part of your answer, I would guess. Certainly if we have Ministers here, which we will later on in the Committee’s life, that is what they would say. Do you want to say anything on that because I then want to come on to confusion among the recipients of care and accountability. But do tackle the first part of the question if you wish, if you feel there is anything else you want to say.

Olivia McLeod: I do not think there is anything I want to add to what was said before.

Baroness Shephard of Northwold: I do think it really has been very well tackled. You mentioned that you were doing a piece of work among Ipsos MORI as to why there was low take up or whether there was confusion among parents. Is there a departmental view as to why there might be?

Olivia McLeod: Yes, the piece of work was not specifically about the two year-old entitlement, the piece of work was just generally about how parents find information about childcare.

Baroness Shephard of Northwold: Yes, which is confusion or not as the case may be?

Olivia McLeod: Yes, and of course there is quite a lot of local variation because local authorities are under a duty to provide information to parents and how they approach that obviously does vary from place to place. There is a lot of good practice out there, but there are also places where it is difficult.

A couple of the issues: one thing is how do parents make judgments about quality when looking at different types of provision. One of the things that we are working with Ofsted on is how we can make the inspection frameworks for early years and childcare more consistent. At the moment we have separate frameworks for childminders, for PVI providers and for schools that provide early years. That is obviously quite confusing for a parent if they are trying to make a decision between different types of provision. So we are working on how we could bring those inspection frameworks together initially by making sure they are looking at the same areas and that you can compare. But in the longer term, there should be a single integrated framework for education and childcare. So that is one of the issues.

Then there are specific issues. I know from my own experience that trying to find a childminder can be very challenging. Because of the nature of their operation, they are not people that have a big web presence or are able to advertise themselves in the way that is probably easier for nurseries and for schools. That was one of the drivers behind the Childminder Agency legislation, which is that it will be a one-stop shop for parents. So if what you want is good quality domestic care for your child then by going to a childminder agency you can be presented with a range of options within the local area and have some sort of guarantee of consistency around price and around the sort of support that childminders will get.

So these are just examples of the sorts of challenges that parents will face and the things we are trying to do to tackle that.

Baroness Shephard of Northwold: At a certain stage, and you have already explained that you are at this stage, if you are expecting a child you come under the purview of the health service. Everybody does. That is absolutely universal. Is there ever any thought given to the fact that as people approach this stage, because they all pass through the hands of the NHS—we have nobody here from health at the moment—that it might be a possibility to give those people information via the health service. Does this happen?

Olivia McLeod: Absolutely it does. It absolutely is, I would say, our top priority.

Baroness Shephard of Northwold: Does it happen now?

Olivia McLeod: Yes, indeed. Health visitors do give information.

Baroness Shephard of Northwold: So they give you a package and they say, “If you are in this position you could apply for this”? That happens?

Olivia McLeod: That is right, yes. We have been working with the Department for Health to ensure that health visitors have information about all of the entitlements that children have, and particularly for that two year-old offer, because we know that the sooner that somebody is talking to that parent about childcare, the earlier that happens, the more likely the parent is going to be ready mentally and practically to take up the offer.

Baroness Shephard of Northwold: Can the Committee have samples of the information that is going to people who are expecting their first child?

Olivia McLeod: Absolutely.

Baroness Shephard of Northwold: That would be very useful. I think that will help allay quite a lot of doubts in my own mind if we can have that information or any example of that information.

The next thing I want to say is that all of the initiatives that we are concerned with and you are concerned with are receiving public money Where does the accountability for those various funding streams lie? Who would you get in touch with if it is not working for you? This is much more a question for Ministers and it almost certainly is not fair to be asking you. But if you have any comment on that that would be helpful for the Committee.

Olivia McLeod: What I would say on the early education funding that goes to the dedicated schools grant, obviously the accountability ultimately for that funding lies with the department and with the accountable officer of the department. Then there is the accountability that the local authority has for the spending of that money and they are held to account through the section 251 return, which is the return that they make to the department about how they are distributing their funding.

Now, when it comes to the DSG, interestingly, the local authorities require to consult the schools forum, which includes an early education, early years representative, on how they are deploying that funding in terms of the hourly rates that they are offering for the early education entitlement. One of the things that we have done to try and strengthen accountability is we have published data so that local areas can look at how their hourly rate compares with other areas. That has been very valuable, both for parents and providers, to challenge some local authorities on why are they holding back perhaps a larger amount of money than another local authority, meaning that less is getting through to the child.

Of course there will be legitimate reasons, in some cases, where they are holding back money––for example, to invest in special needs––but there will also be other reasons and it is important that we have that degree of accountability to challenge it. So that is just for that element of the funding and perhaps colleagues want to talk about the others.

Tom Smith: For tax credits, the accountability is through HMRC and Lin Homer is HMRC accounting officer. That is relatively straightforward.

Q8 Baroness Noakes: Lady Shephard has been asking about confusion among parents, I just want to extend that into what we understand about the knowledge of parents and the extent to which parents can make informed choices, and indeed what drives those choices. Are the choices fundamentally financial choices at the end of the day, that is, how much net they think they are going to have to pay or are they good purchases of quality?

Olivia McLeod: We do a parents survey––I think it is every two years but I can confirm that––which asks parents exactly those sorts of questions. We know that certainly cost is an issue and convenience is a very important issue. One of the things we are trying to do is raise parents’ awareness of quality and of qualifications and the importance of that, and encouraging parents to be asking those kind of challenging questions when they are thinking about childcare. The new inspection framework that came in last September for day-care providers includes much more about qualifications, for example, so parents will be able to see more clearly not only cost and convenience but also what quality they are being offered. We would really like to see a market that is based more on that competition of quality as much as anything else.

Obviously it needs to be a very personalised approach for parents. One of the things that we invest in, which has been hugely successful, is the parents’ champions project, which is run by the Family and Childcare Trust. That is where parents are trained to support other parents—obviously we are talking here about disadvantaged communities—to unblock some of the myths and concerns they have about childcare. We know that some of these things, as I think you were alluding to in your question, are not very susceptible to rational argument, so having a parent who looks and feels like you saying, “Oh, well I was worried about this but it has worked for me” has been shown to make a real difference in terms of how confident parents feel, not just in taking up childcare but then being, as you say, an informed consumer and asking questions of the childcare provider about what service they are getting.

The Chairman: I think we are going to come back to the question of costs in two or three versions in a moment but can I ask Baroness Tyler whether she wants to raise her question at this stage?

Q9 Baroness Tyler of Enfield: One aspect of the question I was going to ask we have already covered. That was about whether free early years education is intended to improve child development outcomes, free up parental time for work or both. I think we have covered that but the second part of that question, which I would like to explore with you is: how effective has it been at meeting either of these objectives? I am very interested to know first of all what sort of evaluation evidence you have around effectiveness of meeting those objectives.

Olivia McLeod: On that one we do have a huge amount of evidence that supports the case for saying that investment in early education and childcare does impact on children’s outcomes and does impact on maternal employment. So I will perhaps deal with the children’s outcomes one. The major study was the EPPE study, which showed the huge benefit for children, especially from age two upwards, on all round attainment and behaviour. It is a significant predictor of key stage two performance and these benefits last all the way through primary school. We know that the benefit of high quality childcare is greater for children from disadvantaged communities. That is so important because I think one of the most shocking statistics in a way in this area is that children from disadvantaged backgrounds start school with a 19 month difference in terms of development in their language capabilities. If you think about a child at four having a difference of that scale there is no surprise that has a huge long-term impact. So the evidence is very strong from EPPE.

However, it is always quite difficult to then make direct correlations between the things we are doing today and what is going on. What is encouraging is that the early years foundation stage profile results have been going up. In a way we broke the line by changing the early years foundation stage profile, making it better and strengthening it a couple of years ago, which means that you cannot compare the most recent results with those that have gone before. The years that had gone before were showing a growing improvement in terms of those results. Just to be clear, that is the assessment that happens at the end of reception of children across a very wide range of outcomes, so not just about the core literacy and numeracy issues but those wider outcomes for child development as well. It was encouraging to see that that was improving.

We do recognise there is a need to do more research in this area and that is why we have commissioned, and indeed it is underway, this study of early education and development, which is a follow up study to EPPE. We will look at exactly these issues, not just what is the overall impact of early education on children’s outcomes but what is the difference between different types of provision, what is the difference between graduate-level and otherwise high quality provision and less high quality provision. We are trying to tease out the evidence.

Baroness Tyler of Enfield: What is time scale for that piece of research?

Olivia McLeod: It is a longitudinal study so it has different milestones but I am pretty certain that some of the data from it is coming out next year. I am very happy to give you a note that explains, because it will be very eagerly anticipated by all of us, I know.

Baroness Tyler of Enfield: Indeed.

Q10 Baroness Gould of Potternewton: We have talked a lot about child development, which is absolutely essential, but is there not another element that needs to come into this equation––the whole question of family life? How do you talk about the balance, or do you talk about the balance, between what you want to provide or are providing, the costs and so on, and its effect on the family life? I am a great believer in women going out to work but, again, if this is one of the objectives of childcare then how does that fit into that sort of triangle of ensuring that there is good family life too?

Olivia McLeod: Absolutely. That is what I was saying in a way about the complex issues. It frustrates me sometimes when it is presented as if parents, mothers, just make a financial decision about whether to go out to work or not. Clearly it is as much about how comfortable they feel that their child is going to be in a safe and positive environment and that is why the quality of childcare and parents understanding of the quality of childcare is so important. But, as you say, there is also this thing about parents balancing their lives. Just to give you an example, one of the things that we are working hard on at the moment is how to encourage schools to be more flexible in how they offer the early education entitlement. So at the moment the vast majority of schools will offer you five days a week for three hours, either in the morning or the afternoon. Now, if you are parent who wants to work, say, three days a week and then have two days a week where you are with your child, which is a very common pattern I happen to know––I do not think it is just in the civil service: it is a very common pattern––what use is that to you that you have three hours for five days a week? It is not much use at all.

We are encouraging schools and other providers to allow more flexibility so that you could take your 15 hours in three days and also that you are open from 8 am to 6 pm so that parents who want to put all of their work into a certain number of days in the week and then have full time with their child the rest of the week can take advantage of that education. The work that we are trying to do support and encourage schools and other providers to be more flexible in how they offer the early education entitlement but also more generally how they offer childcare is a really important part of enabling parents to balance their lives in the way that suits them best.

Jacob Soper: I want to say something on some of the customer insight research we have been doing, which is talking to people about the decision they make when they have children or a single mother has children and is looking at going back to work and how she thinks about that as a financial choice. Some of the things that have come out of that have been interesting in terms of the way mothers are weighing the financial choice against other decisions––against what they see as putting their children into childcare. That has been an important part of how we thought about the delivery of Universal Credit and the back to work discussions that Jobcentre Plus advisers will be having with people when they come to that stage in their life. We can then understand and people working on the frontline in DWP can have a well-informed discussion with people, helping them to make that choice. Does that make sense?

Baroness Gould of Potternewton: Yes, it does, thank you.

Q11 Baroness Walmsley: I want to ask you about costs. I have a question and a supplementary, but I am going to put the whole thing together because I think it will be easier for you to respond.

I first of all want to tease out whether childcare in this country is more expensive than it is in other comparable countries, or is it just the cost that parents pay is more? We know that childcare costs have been rising over recent years so I wonder whether you can tell us what is driving that. Given that the direct school grant and the early education grant to local authorities is not ring-fenced––indeed you have just been mentioning the fact that the hourly rate that they pay to the setting varies––can you say whether you feel that accusations that these low fee levels in some local authorities are driving settings to overcharge for additional hours over and beyond the free entitlement, which is pushing up costs to parents, hold any water? Can you say how parents can be enabled to find out what is going on? How are settings accountable to parents for what is going on with these various charges and where does the blame lie if costs are going up? Is it the local authorities that are not passing the money on? Is it the Government not giving the local authorities enough money? Is it the need to cross-subsidise for particularly small settings? What is happening? It also varies tremendously across the country. You might like to say something about that as well.

Olivia McLeod: There is an awful lot in that but shall I start?

Baroness Walmsley: There is, but we might as well talk about it altogether.

Olivia McLeod: Yes, okay. So you started with the question about international evidence, which is very interesting. The data is quite mixed in terms of what it says about affordability of childcare in the UK. We do have a relatively high cost to parents where both are earning the average wage, but we have a lower than average cost to parents where it is a single parent. I think that reflects some of the things we may come on to about where we skew the money and that a large focus for our money is how to support the lowest earning parents. That plays out in the international comparison. I am very happy to give you the chapter and verse on that if it would be interesting.

Baroness Walmsley: Yes, I think it would.

Olivia McLeod: It tells you a bit about some of the risks around making these comparisons, which you would obviously understand.

On the question of costs generally for childcare, it is certainly the case that according to the Family and Childcare Trust survey, which is one of the key bits of evidence in this, over the last few years costs have gone up for child care above the rate of inflation. However, what is encouraging is that the most recent information from the Family and Childcare Trust and also from Laing and Buisson, which is one of the other sources of evidence in this, suggests that those costs are stabilising. For example, there was no real growth in fees for the second successive year in 2012-13 across different types of provision.

Then you were asking about what is it that is driving cost? Of course we talked about quality levels and we know that the quality and the qualification levels in childcare are going up. That is a good thing. But the risk obviously then is that costs go up too and I have said a bit about how we are trying to remove unnecessary cost from the system, both in terms of removing some of the regulatory burden—for example we have just amended the registration system for childcare to make it more straightforward and to take away some of the unnecessary paperwork that is associated with that—but also some of the things I was talking about in terms of scale and efficiency. That is how we feel that you can start to see the costs balancing out better for providers. Obviously, though, there are going to be variations in terms of where the provision is.

You then asked about the hourly rate. We obviously provide the funding to local authorities and for the three and four year-old offer and indeed for the two year-old offer, they have to agree with the school’s forum the hourly rate that will be provided. So there is that degree of accountability. For the two year-old offer, we have been very clear about a national hourly rate, which I am pretty certain is £5.09, which does compare well with what the Family and Childcare Trust tells us is the average that nurseries would be charging. If you were not getting that entitlement and you were paying for your two year-old to be at nursery, you would be paying on average £4.44 but the hourly rate that we are recommending that local authorities pay for two year-olds for the entitlement is £5.09. So you can see that that compares fairly well.

Baroness Walmsley: May I just clarify that? So the Government is clear that it believes that it is funding that entitlement at the average cost of delivery? If it was not free and people were having to pay for it—

Olivia McLeod: At above the average cost of delivery, yes.

Baroness Walmsley: Above? I see.

Olivia McLeod: Yes, at above. What you were saying is absolutely right about local variations. Some local authorities are paying significantly above £5.09; other local authorities are paying below. One of the things we have mentioned before is that we are trying to make all of that much more transparent so we have published a benchmarking tool, which means that if you are a provider and you look and say, “Wait a minute, over there in that local authority they are getting paid 20p more per hour”, you can take that challenge to your local authority. The NDNA tell us that that has been quite effective.

Baroness Walmsley: That is helpful.

The Chairman: Again, just to be clear, are you talking about two year-olds or three year-olds or four year-olds, which?

Olivia McLeod: Yes, thank you. So on two year-olds we have been very clear about the national recommended rate as such, the £5.09. That is an average rate. Obviously there will be local variations to do with disadvantage, costs and things like that.

On three and four year-olds we know that the average rate is around £4.50. We just know that from what local authorities tell us. So in terms of the money that we pay, that would allow an average rate of £4.50. We know that the average that providers are getting is only around £4 and that is one of the things that we have been seeking to challenge through our changes to the local authority role in early years and childcare, which is to really challenge local authorities to pass as much of the money on as they can to providers. So, for example, any good or outstanding provider would automatically qualify to receive early education funding rather than the local authority being able to attach conditions to that funding, which can then sometimes add costs for the provider.

As I say, this is not a big bad local authority story because we recognise that local authorities retain some of that money for very legitimate reasons––to support children with special educational needs, for example. But, nevertheless, we know that some local authorities are able to pass on a much higher hourly rate than others and we really need to ask those that are paying less why that is. That has a direct impact on children.

Q12 Baroness Walmsley: Since Ofsted has taken over the role of inspecting quality and local authorities’ role has been reduced, have you noticed that local authorities are retaining less money?

Olivia McLeod: That is a good question. I am not sure that we have data—we might have data.

Baroness Walmsley: You need to look at that.

Olivia McLeod: The section 251 data would tell us that, I think, so I am very happy to take that away and see whether we have that evidence. It is obviously a relatively recent change so we may not see it coming through yet but we would want to see that.

The Chairman: You say they might be retaining money for other good purposes, but that suggests the other good purposes are not being funded adequately and these are the kind of tensions that we are talking about.

Baroness Morris of Bolton: I am a little confused so if you could help me out I would be very grateful. If a parent decides that they want to go to a small local provider where there are smaller ratios of staff to children but the costs are considerably more than the charge the provider is getting, are they able to charge the parent on top? I had thought not.

Olivia McLeod: Yes, sorry, you are absolutely right. That was one of your questions that I missed and I did want to pick that up. They are not allowed to charge top up fees for parents in addition for the 15 hours. They have that negotiation with the local authority, if they are not happy to provide the early education 15 hours at the cost the local authority is offering them they could opt not to do that. But if they do offer it they have to charge parents those hourly rates.

Baroness Morris of Bolton: We come back then to the quality cost, because it may be that that is a high quality setting that chooses to have smaller ratios or better qualified staff and therefore they are not able to offer to children that probably would benefit greatly.

Olivia McLeod: Two things I would say on that: the first is just to reiterate the point that I do not think it is inevitable that they have higher costs because they are employing higher qualified staff. As you say, they may choose to offer a smaller ratio but the evidence suggests that you can have high quality with the ratios that we have and if they were using that ratio then they would not necessarily have to add to their costs. That is the IPPR evidence I put before.

The other point is that most providers do not opt out of offering the early education entitlement because they know that any parent is going to want to go to a place where they can access their early education entitlement. It is a very small cohort of parents that would be willing to give up what is a very significant support for them in terms of paying for childcare. Obviously some parents do, but in most cases the incentive on the provider to offer the early education entitlement is so strong that they will make it work for them.

Baroness Morris of Bolton: Has it been considered to look again at top up fees, or is that just dead in the water?

Olivia McLeod: Not that I am aware of, no.

The Chairman: I am going to move on to Lord Patel now who has two or three questions I am very keen to get in before we finish.

Q13 Lord Patel: It is related to some of the discussions we are having, which is related to the cost. I am trying to find out what is the prime strategy of the Government in terms of costs? Is it to drive down costs or is it that you want to find a global sum and let the parents manage that? What is the strategy?

Olivia McLeod: I just want to make sure I understand your question.

Lord Patel: Is it the intention of the Government to drive down the cost of childcare? You mentioned several times the efficiency of the scale.

Olivia McLeod: I think what we want to ensure is that as far as possible parents have the choice of what I often reel off as high quality, affordable, flexible childcare, which I guess is the holy grail here. So what we are interested in is: how do you ensure that you have high quality childcare that is affordable for parents? There are two ways you can do that. One is through the supply model and therefore how do you encourage a supply model that offers quality but at an affordable cost. So I mentioned the point about schools, because of the scale of schools, because of the infrastructure that they have, they can afford to employ graduates and to operate in a way that offers the characteristics that we recognise as high quality provision at a cost that is affordable. There are some case studies of that. We did some analysis of a number of schools that are offering 8 am to 6 pm and what we found is that they were able to offer a lower rate on average than the regional average, even though they were offering it in a high quality setting. That demonstrates that it is possible to provide high quality childcare at an affordable cost. The other way of course that we try to make high-quality childcare affordable for parents is by supporting their spending through both the early education entitlement and the huge investment that my colleagues make in Universal Credit and in tax-free childcare. Are we trying to reduce costs? I think we are trying to make the cost affordable for parents without sacrificing quality. That is the goal.

Lord Sawyer: Do the others have any comment?

Tom Smith: I have nothing to add. I think Olivia captured it admirably, and obviously part of what we do is giving parents money to help them meet the costs as part of the work incentive.

Jacob Soper: Universal Credit implicitly recognises that there is a cost to childcare. We want to help parents meet that cost so that they can go out and work, but this is not about sacrificing quality for the sake of cost.

The Chairman: We are obviously now focusing a bit on what the Government does and what it puts into this. I wonder whether Baroness Noakes would like to take the discussion forward.

Q14 Baroness Noakes: I wanted to try to ascertain whether we have an idea of the total cost that the Government is bearing in terms of childcare and where we would find that. Is it all spread out over different departments?

Olivia McLeod: Yes.

Baroness Noakes: But does anybody bring it together? You have talked about working together. I am trying to get a realistic view of what the cost of all this is.

Olivia McLeod: Yes, absolutely. I can tell you a bit about that. The overall amount the Government spends on this is around £5 billion per year. Of that, around £2 billion is for funded early education, so that is the bit that my department is responsible for, and that will rise to around £3 billion by the end of the Parliament because of the new entitlement for two year-olds and the growth in that. Tax credits and the benefit disregard is a value of around £1.5 billion a year and currently the employer-supported child care––that is the existing voucher arrangements––is going to cost around £800 million per year. That is how the £5 billion is made up.

The Chairman: The Government contribution to that scheme alongside what employers do?

Olivia McLeod: Yes, that is correct.

Jacob Soper: Can I just add that in terms of the tax credits, that will rise under Universal Credit by around £600 million a year, so we are spending £200 million a year to extend provision for childcare in Universal Credit to people who are working fewer than 16 hours per week. That will be for the first time. Then of course there is the increased generosity with the Universal Credit from 2016, where we will be paying an 85% rate rather than a 70% rate. That is a further £400 million.

Olivia McLeod: Sorry, I just want to pick up one point, because somebody talked—I think it was you, Chair—about the money that local authorities use to support very legitimate activities. We know at a minimum that local authorities use at least £86 million of their high-needs funding, which is a sector of funding blocked from early education to support children that are in early years, so there is additional money that comes in to support those children.

Baroness Noakes: Just to complete that, so you know where the costs are. Where do you draw together the benefits and evaluate the total of what the taxpayer gets for the totality of £5 billion or so?

Olivia McLeod: Yes. This in a way goes back to the question about how do we demonstrate the benefit, as you say, and whether we get that money back in terms of outcomes for children and maternal employment and then benefits for the economy as a whole. Obviously it is really complex stuff, but we have a number of studies ongoing at the moment that will help us understand that. There is something called the EPPSE study, which involves the Institute for Fiscal Studies, and that is looking at the economic benefits of preschool experience and their predicted subsequent contribution to the Exchequer. It is in particular looking at what are the lifetime earnings implications of a child being in early education. We know that the evidence that we have already suggests that there would be a lifetime earnings benefit, but we are trying to quantify that through that study. That study is due to be published in September so it is eagerly anticipated.

There is also a study that is being run by the Institute for Social and Economic Research, which is looking at the impact of funded early education on labour supply, so there is a question that my colleagues are also obviously strongly interested in around whether it helps in terms of maternal employment and what that brings back to the Exchequer.

In summary, the evidence that we have strongly supports there being a strong invest-to-save argument, but we are doing some further detailed analysis to try to monetise that more effectively.

Q15 The Chairman: Just to push a little bit below the surface of what you have been saying, I wanted to ask about what evidence there is on a very specific example of the effectiveness of tax credits on maternal employment. I think this is for Tom Smith initially. Is that evidence being collated? Is it there, because by and large we have been talking about what the future will be like in one, two or three years’ time?

Tom Smith: Sure. What we have is two bits of evidence, and there have been studies in the past, not specifically focused on UK tax credits, but on the connection between support for childcare and how that feeds through into parental employment. What we also have is evidence that flows from customer surveys and conversations with people who use tax credits in similar schemes and their perception in terms of how a reduction in the rates of the childcare support care that they currently get would impact in a negative way on their decisions on employment.

The Chairman: Do we have some hard numbers on that?

Tom Smith: If I remember rightly, what we have is percentages in terms of people stating the impact of a reduction of this amount on choice as to what people would do: X% said that they would give up work completely and another percentage said that they would reduce the numbers of hours. If you are interested in the detail of those findings and where they came from, then I am sure we can do a note on that.

The Chairman: I think the Committee would be. Has there been a similar focus on the difference between Universal Credit and tax credit? If the policy is moving, then there must be a good reason for it, in the minds of the Government at least.

Jacob Soper: Let me say a little bit about that. Whether there was strong evidence about the actual causal relationship between the level of childcare subsidy that the household receives and their decision to go back to work, I think there is evidence to suggest that low-income families respond well to financial incentives. I do not think we can stand here and say that we can absolutely tie that to the cost of childcare within a household, but we accept the argument that has been brought to us by lots of stakeholders, such as the Joseph Rowntree Foundation, CAB, and the Children’s Society, that improving the financial incentive to return to work is going to make it more likely that people will work.

The introduction of Universal Credit will give us an opportunity to understand that in more detail. We are going to have a much a closer understanding, because it is a monthly benefit, so we will have people’s incomes, their monthly childcare costs, and when they return to work we will be able to interview people as well. There will be a real opportunity to understand that, and again, as the rate is increased in 2016, there is a good natural opportunity there to understand the relationship between funding and employment outcomes.

The Chairman: I think this is probably an unfair comment, and you can reject it as such, but you could almost think you were saying that the introduction of Universal Credit is a speculative thing and it remains to be seen what its impact will be.

Jacob Soper: Not quite.

The Chairman: Again, are there numbers to help justify that introduction as distinct from in this area?

Jacob Soper: There are lots of people who have told us that the simplicity of Universal Credit will make it easier for people to take decisions to go back to work. I do not think that is just hypothesis. I think that is justified customer research. But to have a thorough experiment, a really thorough understanding of what the impact of, in some cases, quite small changes to individual households’ childcare funding subsidies are going to be, it is going to require more study and I think that is fair.

The Chairman: Presumably this will be monitored very closely. It was unfair of me to imply it was as stark as that, but on the other hand, it is raising an issue of how these policies are pushed through. I just wish we had somebody from the Treasury to tell us how the evidence affected them, because surely it must.

Q16 Baroness Neville-Rolfe: I will start by declaring an interest both as a parent of four children who worked all the way through and now has grandchildren in the childcare system and also as an executive director at Tesco until the end of 2012 for many years. Obviously it is one of the country’s biggest employers. I took a lot of interest in diversity issues and how you get women right up the pile in terms of working.

I wanted to move on to costs and just think a little bit about the dynamics. You have talked a little bit, I think helpfully, about Universal Credit, which seems to be a particular dynamic that is going to affect the costs. My impression is that the end of the 16-hour limit and the move to the 85% that you mentioned––for example, a bigger reimbursement––is quite an important dynamic, which will be a real incentive to work rather than not to work. The focus groups suggest that that is likely to be positive. If that is right, it would be good to hear your view.

The second dynamic is that if you get people to go back to work, you will obviously get more tax coming in. I wondered whether you had made an estimate in the work on Universal Credit and other changes as to how the tax take might increase, because that would add to Baroness Noakes’ notion of benefit.

The other dynamic we should mention and you might want to comment on is the informal sector. There is a lot of very good childcare done by people like grandparents, and I am not sure quite how that comes into the cost benefit equation.

Jacob Soper: On the first part of your question—I am sorry if I get this wrong—that sounds very similar to the discussion we were having a few moments ago about the hypothesis, but we are accepting the argument that improving the return to parents for each hour they work is going to provide a positive work incentive and therefore more likely to lead to a positive labour market outcome. Universal Credit will be an interesting way to research into that.

I am sorry, what was the second part of your question?

Baroness Neville-Rolfe: The question is do we have any estimate of that, and the second question is if people are going back to work, will they pay more tax and will that be a credit in the cost benefit equation?

Jacob Soper: I see. It is complicated, because the costings that we are producing for Universal Credit have to be firmly anchored in the evidence we have and so forecasting, second-guessing the labour market outcomes is quite a tough order. I appreciate it is a good question and it is something that we will be interested to understand, but I do not think I can sit here and promise you a note that says exactly what we think the absolute increase tax take is going to look like in 2017 or 2018.

Baroness Neville-Rolfe: I was questioning it—and please think about it—because you have had some pathfinder work now, I think, on Universal Credit. We are obviously incredibly keen that the £5 billion or the £7 billion, if you add in extra employers, is a huge sum of money. How do we make sure that that is being well-spent to improve childcare outcomes and work outcomes? Anything you can do to look forward a bit—I called it dynamics—I think would be helpful to the Committee’s work.

Olivia McLeod: I mentioned before the studies that we are undertaking to try to pin that down, but just, for example, our BPR did some work to estimate the impact of a single year of improving employment levels and they estimated that a 1% improvement in maternal employment would yield £200 million to the public purse. That is just one example of efforts that there have been to try to monetise the benefit. But as I said before, I think we can offer you something on what the evidence tells us now about that and the research studies that we are doing to try to get a tighter grip on that information.

Jacob Soper: We share your enthusiasm for wanting to see the return for the investment for Universal Credit, so that is something we will be monitoring carefully as well.

The Chairman: Tom Smith, do you want to comment on the knowledge base for what might come in through tax?

Tom Smith: I think it squares with what Olivia said, that there are studies out there suggesting that these impacts could flow through. Obviously we and my colleagues elsewhere in HMRC who deal with these questions of tax would say, “That is great. We want to build up our knowledge base”, as Jacob said. The question ultimately is what we can score through the Office of Budget Responsibility in terms of what is likely to arrive and that is quite an exacting standard in terms of the evidence base.

The Chairman: I am tempted to say since HMRC is UK-wide that this a very specific issue in Scotland, where predictions about paying for this sort of thing are set against precisely what the expected income is and it is quite a hot political issue. I do not know if you have looked at that, but that is probably outwith the scope of our inquiry, but it would give an example of the prediction-making in this area.

Olivia McLeod: Yes, we have watched with interest obviously what was happening up there and I know they have made some calculations around the benefit they expect from their policies on childcare. I understand that the Treasury has done some analysis of that as part of the work they have been doing this year.

The Chairman: Sadly they are not here to tell us about it; that is becoming a constant refrain. In fact, I have two others who want to come in. We have a minute or two.

Q17 Baroness Tyler of Enfield: Thank you very much. I would just like to ask Olivia, if I may, directly. You have talked several times about the sort of Holy Trinity, if you like, quality, affordability and flexibility, which I absolutely recognise. But an underlying element to allow any of that to be applied is the actual basic availability of childcare. We have the sufficiency duty from the Childcare Act 2006, which I know was amended in the recent Children and Families Act. The recent report from the Family and Childcare Trust said, “It would be difficult to see the Childcare Act sufficiency duty as a success”, and suggesting that it was not providing that sort of ability for the local authority to come in, ensure there was sufficient childcare, and help shape the market. Could I just have your perspective on that?

Olivia McLeod: The sufficiency duty I think is quite clear about the local authority responsibility to ensure that there are sufficient places for parents so that they can work, and a specific element of the sufficiency duty, which is about children with SEN, which we know is important. I was in the other House—if that is what you say—and I was speaking to the parliamentary inquiry on SEN and childcare and talking about exactly that issue. I think the sufficiency duty is very clear. What we are really seeking to do is to encourage a growth in all aspects of the market in order to give parents that choice that we are talking about and we have seen some evidence that the market is growing, albeit fairly small, so there has been an increase in the number of providers.

But interestingly, just set against that, we are, as I say, putting more exacting standards on providers in terms of the Ofsted framework, and so we know one of the impacts of that has been for some providers to fall out of the market, which we see as a positive development, so there is kind of different things going on there that although we want to see a general increase in the size of the market, we do want it to be of quality and we want to be sort of generally raising that quality. The inspection evidence suggests that is exactly what is happening, because the proportion of good and outstanding childcare providers is rising.

In terms of the question about whether local authorities have the leverage to manage the market, I think we would argue that they do. Obviously through the early education entitlement they are setting the funding rates, and through that negotiation they have with providers, they have a lot of scope to incentivise different types of providers into the market, and that is something that we would encourage them to do, particularly at the moment, for example, encouraging them to challenge their schools around the role that they are playing.

We are doing a piece of work currently with the Greater London Authority and London Councils looking at schools that are offering 8.00 am to 6.00 pm flexibility and how they can accelerate a momentum around other schools offering that for parents. Clearly still the majority of primary schools are maintained. The local authority has a key role to play in challenging and supporting schools to be able to do that. You can see local authorities that are doing this really effectively, and what is interesting about the delivery of the two year-old entitlement is the variation between local authorities that have quite similar characteristics and we believe that is all down to—or largely down to—how effective the leadership of the local authority is in understanding the supply and demand dynamics locally and making sure that they are properly matched.

Q18 Baroness Walmsley: I have a couple of sweeping-up questions, if I may, Lord Chairman. Given the time, you may want to write to me about this. I just want to go back to two quick things that you said. I think you misunderstood my question about cross-subsidy. Baroness Morris was asking about whether settings could top up what they were getting from the local authority for the free entitlement. What I was really asking was whether settings are cross-subsidising what they consider to be a shortfall in what they are getting for the free entitlement by charging more than they otherwise would for additional hours, so I wonder if there is any evidence of that, because there are allegations of that. I would very much like to hear about that.

The second thing is that you are clearly looking to schools to increase capacity in the early years’ market and you have talked about the fact that they have an infrastructure advantage to enable them to do that. I would like to know a bit more about what you mean by that. Are you suggesting that they have the premises, because I thought numbers in primary schools at least were rising and most schools were jammed to capacity and did not have any spare space, but if it is a matter of their not having to pay high business rates or not having to pay rent or issues like that, then we can look at whether independent settings and voluntary settings could in some way be helped with those issues in order to make it fair right across the piece.

Olivia McLeod: Absolutely, yes.

Baroness Walmsley: We need to know what you mean by that infrastructure advantage that you believe schools have.

Olivia McLeod: I think on the cross-subsidy point, I would like, if you do not mind, to come back to you on that, because I am very aware of the accusation or the suggestion that that is what happens, so I think it would be good to come back properly to you on the evidence that we have around that.

On the infrastructure point for schools, partly I am talking about scale, the size of the school. As I said, the evidence from the Bain analysis was that 50 was the minimum at which you could operate a cost-effective business that has high-quality staff, and of course most schools are going to be at least of that scale, if not greater, so that is one of the issues.

I think the second thing is about the leadership infrastructure. In a school, clearly you are going to have a hierarchy of leadership, you are going to have a head teacher that is going to have the kind of experience and qualifications that it would be very difficult for a small provider to ensure in every setting, so there is something about that wider infrastructure.

Obviously the point you make about capacity is a really important one. That is why we are so keen to push the 8.00 am to 6.00 pm agenda, because we know that is about making better use of capacity that already exists, so if you have a nursery provision on a school that is currently open for a maximum of six hours a day, then you are not making the most use of that capacity, so you can increase capacity—just to make a back-of-the-fag-packet calculation—by 60% just by extending the hours that service is open to children.

But we are also keen to encourage schools that currently do not have nursery provision to open nursery provision and we have provided some capital funding as part of the two year-old entitlement to local authorities so that they can support that, not just for schools, but also for PVI providers. We know that some local authorities have used that money really effectively to help PVI providers to grow their size as well, because I think you are absolutely right that in terms of this commitment to parents being able to have a choice, we must ensure that as far as possible PVI providers are able to unlock the same efficiencies as well. One of the ways that we are keen to encourage that is through better collaboration between PVI and schools, so we know, for example, there are some schools that have really excellent PVI provision onsite, so the PVI uses the school premises, brings its expertise both in terms of the early years but also in terms of its engagement with parents, but makes use of the school site and is therefore able to run much more efficiently than if they were having to pay all of their own overheads. Those are the sorts of things we are doing.

The Chairman: Finally, sweeping up, the last question comes from Baroness Neville-Rolfe.

Baroness Neville-Rolfe: On a final point of clarification, you helpfully said that parents care about cost, convenience and quality, I think, which was a helpful summary. Does quality include safety, because as a parent, safety was for me always the most important, particularly for the younger children, and that is a combination of being safe from outside threat, but also the ratios.

Olivia McLeod: Yes, absolutely, and we are so fortunate in this country to have the Early Years Foundation Stage, which has an element of it that is about health and safety and, as you say, the security aspect, which applies to all providers. Whereas some providers can opt out of the learning aspects of the Early Years Foundation Stage—for example, Montessori nurseries sometimes apply to opt out of that because they have their own pedagogy—no one can opt out of the safety requirements of the EYFS. We believe that they are really good standard requirements which people are required to follow, and obviously very carefully inspected in that respect from Ofsted. I agree with you, that is almost the sort of the minimum, is it not, for parents?

Q19 The Chairman: In conclusion, can I just tie together two of the questions that we had and ask if you could let us have a note? The two questions, one from Baroness Walmsley and one from Baroness Noakes, about overall cost to the Government and putting that in the context of international comparisons. Is there an adequate source we could go to, whether it is in terms of percentage of GDP or whether it is how much the Government puts into the system in cash terms, because I think we would find that very helpful?

Olivia McLeod: The OECD certainly provides data on that and we can give you a note that explains both what it tells us and the limitations of that data, yes.

The Chairman: Both are important. Can I thank the three of you very much indeed? We appreciate the detail that you have gone into and you have already agreed to give us several additional notes. Of course, colleagues from the Secretariat will be in touch with you fairly regularly, I think, but certainly as regards a summary of what we hope will come out of this specific session, you will see a version of what will be published in terms of the dialogue we have had, and perhaps over the subsequent months, requests from the Committee for clarification or further points of information.

Olivia McLeod: Absolutely. We would be happy to help with that.

The Chairman: We thank you all very much indeed.