Revised

Members present

Lord Sutherland of Houndwood (Chairman)

Baroness Gould of Potternewton

Baroness Kennedy of Cradley

Baroness Noakes

Lord Patel

Lord Sawyer

Baroness Shephard of Northwold

________________

Examination of Witnesses

Dalia Ben-Galim, Associate Director for Families and Work, Institute for Public Policy Research, and Adam Memon, Head of Economic Research, Centre for Policy Studies.

Q42 The Chairman: Good morning.

Adam Memon: Good morning.

Dalia Ben-Galim: Good morning.

The Chairman: The seats are named and, equally, we have our names so you can spot us. My name is Sutherland. I have the privilege of chairing this Committee. I welcome you to it. I remind you particularly of the fact that this is now being webcast live, so every word you say will be out there in the ether and may be quoted back and so on. You will receive a transcript of this session fairly soon—within days rather than weeks—and any points of fact that you want to correct do please let us know very quickly. Otherwise, it will be part of the evidence that we publish.

The other thing I have to tell you about—and do not be fazed by this—is that for internal purposes in the House of Lords there will be a photographer who comes in and photographs the Committee at work. That is around 11 o’clock for about 10 minutes or so. We ignore the photographer and, by and large, the photographer tries to be as much a part of the wallpaper as possible, but that will happen.

We have an agenda list of questions. Unlike some others I hope that elements of this session might be in more of a seminar form, but we will try to go through the various issues that we see as important and pick up supplementaries that feed in. To start, could you say who you are to identify yourself for those listening and making a record of the events?

Dalia Ben-Galim: Hi, I am Dalia Ben-Galim. I am an Associate Director at the Institute for Public Policy Research.

Adam Memon: Good morning. I am Adam Memon. I am Head of Economic Research at the Centre for Policy Studies.

Q43 The Chairman: Thank you very much. Perhaps I could start with a fairly general opening question. Clearly, by the time of the next election, policies will have been formulated and put in manifestos. We are a non-party body, in the sense that we are not backing any particular party manifesto. We have Cross-Benchers and members of each of the parties. What we are interested in is creating the conditions under which good discussion and understanding by the public can take place. I want to ask you generally what, in your view, should be the public policy aims of state intervention, because it looks as if each of the major parties is interested in a form of state intervention. Who wants to start?

Adam Memon: To start off with, I think there is clearly a case for state intervention in childcare to some extent, especially when you are looking at children from very disadvantaged backgrounds. The evidence of the impact that some level of state intervention can have on their educational attainment and their labour market attainment—whether they are dependent on welfare later on in life—is quite clear. I am sure all parties will want to continue with that to some extent.

In terms of policy, the question is how we increase access to childcare to those who currently are not able to get the level of childcare or level of education for their children that they want, and also how we try to cut costs for those who already do have access to childcare. Alongside that, and intrinsically related, is the question of employment for mothers. It would be quite difficult to say we want to increase maternal employment by a certain level. I do not think any political party will say that, but what could easily be said is that if one party comes up with a series of policies aimed at trying to reduce childcare costs, they can justifiably say, based upon the literature evidence, that at the same time they will be able to increase maternal employment.

At the same time, in terms of state intervention, what I would also like to see is sometimes rolling back on some issues, correcting mistakes, rather. It is clearly the case that in the UK childcare costs are significantly higher than they have been and compared to other countries. That is a barrier both to childcare and to maternal employment. I would argue that part of the reason is a result of excessive regulatory burdens for child minders but also for nurseries. What I would like to see any particular party at the next election saying is that some action they want to take should be to try to—if not necessarily eliminate—certainly mitigate those aspects of existing intervention that are causing these issues.

Dalia Ben-Galim: Yes. I want to add that I think across the political spectrum the objectives of state intervention are quite clear. They are around reducing inequalities for children and promoting high-quality childcare and early-years education. They are about supporting parents into work and to remain in work, and that is particularly for mums. We know the female employment rate in the UK tends to be relatively high and then it drops quite significantly for mothers, particularly those with children aged under five. A third objective I would say is around gender inequality. At the moment there is a real disparity, in terms of breadwinning and primary caring, that does not necessarily reflect the daily realities of family life. Enabling more affordable and high-quality childcare would support families and also reduce the motherhood pay penalty that many women face when they become mothers.

Q44 Lord Sawyer: I would like to follow on from that with quite a focused but big picture question about costs. I will start with you, Dalia, if you do not mind.

Dalia Ben-Galim: Sure.

Lord Sawyer: In some work I have read, which you have written, there is a paragraph on paying for universal high-quality provision and I would like you to articulate what you think that means. Then, Adam, I would like to know what you think about what has been said, your take on the same issue.

Dalia Ben-Galim: Sure. As many of you probably know—and I circulated a copy of No More Baby Steps, which is a report that IPPR published last month—we recently laid out a plan of what we would like to see any new Government take on as their agenda around early years. What we laid out is trying to simultaneously achieve the three objectives that I laid out around high-quality provision, supporting maternal employment and tackling gender inequality. That is the framework in which the report is set.

We argue that it is a three-pronged approach in terms of how you would pay for it. I think we need to be clear that an investment in early-years education—and particularly around quality—has a price tag attached to it and requires significant investment. There has been significant investment over the last few decades that has resulted in immense progress, but I think it is a good time to reflect on the direction of travel and where those priorities should be. In order to do that, we laid out a number of different priorities. As you probably know, at the moment three and four year-olds are entitled to 15 hours a week for 38 weeks a year. Our proposals include an extension of that to 48 weeks of the year. That is to enable parental employment. We know that most parents find it very difficult, particularly with younger children, to organise their working hours around the school term. It would be better if we thought about it in terms of annual leave and four weeks provision. So that is part of the package.

The other is an investment in quality. I can see that Professor Sylva is one of your advisers. Her work has been so influential in highlighting the importance of high-quality provision. We know that the opposite is true; if it is bad-quality provision it is detrimental for children. Any expansion has to be coupled with an investment in quality. We have laid out steps of how you would improve the qualifications of the workforce and think about how you could, in tandem, expand the offer and improve quality.

Thirdly, as you know, there has been an extension to a two year-old offer. At the moment, 20% of the most disadvantaged two year-olds are entitled to 15 hours a week and that will extend to 40% in September. We have argued to extend that to all two year-olds, again with the provision of high quality, partly to offer all children a good start around accessing education, development and socialisation and in terms of trying to reduce that pay penalty and the gap in employment that many women in particular face with the high costs of childcare. So that is a package.

The way that we propose to pay for that—and it is obviously contentious and is out for debate—is partly through the return on the investment. Boosting the maternal employment rate will generate a return to Government. You will see that we set out the findings in a previous report. We have done some economic modelling, which shows that a five percentage point increase in the maternal employment rate in the UK would generate £750 million per year. That is a combination of a reduction in the benefits bill and also an increase in tax takings. A five percentage point increase in maternal employment rates would put the UK more in line with continental Europe. A 10 percentage point increase in the maternal employment rate would generate £1.5 billion per year. That would put the UK more in line with the Scandinavian maternal employment rate. That gives you a sense of some of the potential benefits.

We also argue for thinking about how current spending is used, thinking about the balance between current measures that are paid for, for families, so options around freezing child benefit to invest in services. We know from some of the international evidence that the investment in services tends to pay higher dividends in outcomes for children than cash benefits. In the report you will see different examples outlined—for example, in Denmark—about a different balance between spending. For example, thinking about current commitments that the Government has made, we would argue that scrapping the marriage tax allowance and investing that in early-years provision would be a much more beneficial way of spending current spending and thinking about the pot of money. In thinking about tax-free childcare, as you probably know the Government have announced a new programme that will replace the employer-supported vouchers and move to tax-free childcare in 2015. We have proposed a way of spending that money differently.

It is a three-pronged approach: thinking about current spend differently; thinking about additional revenue that you would be able to generate through an increase in maternal employment rates; then, thirdly, thinking about other benefits and services and the transition from benefits to services as a way to boost provision. I know that is quite a long answer, but I feel like the background is important in terms of getting to the argument.

Lord Sawyer: No, it is complicated. It is a fair answer. I think that is fine. Adam, your take on that?

Adam Memon: Sure. Certainly, it is quite clear that if you increase maternal employment, perhaps up to another five percentage points, there would be a generation of revenue for the Exchequer and certainly a reduced benefits bill. Alongside that as well there is clearly a motherhood penalty in terms of pay. It is quite stark, even in last year’s data from the ONS. If you are a 34 year-old woman, the average pay gap between men and women is about 5%. If you go to 35 year-olds, it shoots up by another 10 percentage points. It is quite a stark difference there.

In terms of the employment rate, we have had some improvements on aggregate. It has not been quite even across the age group of the children, but we still lag behind Scandinavian countries. Clearly, if you do that, there would be some positive regarding increased tax generation to the Exchequer.

The point Dalia made about quality is, of course, absolutely key. All of the evidence shows that quality is so fundamental, but the problem about universalising childcare is that it is quite difficult to ensure that quality continues. Certainly there has been an issue, something which the Sutton Trust highlighted earlier this year. In increasing the free education entitlement to 40% for two year-olds rather than 20% there was a concern about how we are going to find the people to provide that education. Largely, they are coming from existing childminders. Many of our existing childminders do brilliant jobs but on average they are not as well qualified as people who are working in existing nurseries. You have to find a way to deal with the fact that if you want to universalise education more, if you want to reach more and more children from a younger age, there is a trade-off in terms of quality unless you want to find other ways of paying for it.

You could say, “Let us scrap the marriage tax allowance and let us do other things”, but then, of course, there is a cost to that as well. Whether that all adds up I am not 100% sure, but the end point is clearly the same. We do want to see higher employment rates and, of course, we do want to see more children seeing better-quality education, but the transition from now to more education is not as easy as just spending more money. You have to make sure people have the level of qualifications and background suitable to that.

Lord Sawyer: Do you want me to continue?

The Chairman: If you want to continue, yes.

Q45 Lord Sawyer: Thank you very much for that. I want to focus in a little bit more now and talk about the question of whether the state should be seeking to control prices. Should that be the function of the state and, if so, should that be through the managing of markets or should it be through enabling parents to bear the costs more easily? If the state should be involved, which of those directions should it move in, or should it move in both? What is your view on that?

Dalia Ben-Galim: I think it is pretty clear that the current system is not working and parents in the UK tend to pay a much higher proportion of childcare costs compared to parents across the OECD. I think the latest data shows that parents in the UK pay about 27% of their income on childcare costs, which is very high. It also means that it acts as a barrier for many women in particular to go back to work. The affordability of childcare, time and time again, comes up in survey data about mums who want to go back to work but cannot quite afford it. I think there is an argument that the state should think about different ways of controlling prices. I guess our concern—and concerns that we have laid out in various reports at IPPR about the continuation of either tax-free childcare or demand-led childcare, where parents will receive subsidies or allowances to pay for it—is that it has the risk of inflating the costs for parents without necessarily improving quality or without necessarily any kind of mechanism to control those prices. We have seen some significant increases over the last few years in costs for parents of childcare.

There are some interesting examples from abroad that lead to some worrying concerns. For example, in Australia, the late 1990s reforms were very much demand driven and very much gave parents more money to offer them more choice to pay for childcare. It was a time of rapid expansion. The case study there shows that prices ballooned for parents and the cost to Government was also very expensive, much higher than anyone had anticipated. Many providers increased their costs by a similar amount knowing what parents were given. It meant that it was an invitation to ensure that there was more money. I think that is a risk in moving more towards a demand-led system.

We see internationally that supply funded tends to lead to more stability. By “supply” I mean the money going directly to providers. As you know, there is a mixed market in the UK. I do not think that is going to go away, so it will be a combination of private, voluntary, independent providers and state providers, where money could be funnelled directly to the providers. That would ensure provider stability in knowing how many children are coming, and knowing how much money they are getting week to week and month to month, but it also reduces the potential risk for inflationary costs both for parents and the state. There are different ways that you can do that and there are some interesting examples around price capping. For example, in Quebec they introduced a system that was $5 a day childcare, later raised to $7 a day. That was a universal flat fee for all the children who were eligible. That is one way of offering price capping. There are questions about quality. There are other questions around the Quebec system, but just as an example of how to control prices. For example, in Norway there is a price cap, and similarly in Denmark. The price cap works in a slightly different way depending on who sets it, local government or national government, but it means that no parent pays more than a particular proportion either of their income or of the unit cost of childcare.

Those kinds of mechanisms have been effective in giving the providers more stability in knowing how to run their business and also for parents to know how to navigate through the system. At the moment, it is very complicated. There are three or four funding streams. There is the potential that with tax-free childcare we will have another funding stream for parents. It is really complicated. Lots of parents do not know what they are entitled to. Providers are trying to gather money from a variety of sources and at the moment the costs are just too high. They are prohibitive for many families.

Lord Sawyer: Same question, Adam.

Adam Memon: Yes, I think it is fair to say that there is definitely a case for Government to look at how to reduce the costs of childcare. It is not difficult to say these prices are too high for lots of people. In a lot of the cases it is largely because of avoidable factors. Yes, there can be that focus. Perhaps in the past there has been a tendency to say, “If childcare costs are so high, how can we make it easier for families to pay for it?”, rather than questioning why childcare costs are so high. What is making these costs so high in the first place? A lot of nurseries and day care centres are saying that rent is rising and business rates, and many of the smaller ones also report that the inflexibilities of the regulatory aspect is driving costs as well, especially the smaller rather than the larger providers. There should be more focus on how we cut the cost burden, especially if it is something that Government can do things about, and then seeing the subsequent fall in prices from that.

Lord Sawyer: I think I am basically happy with that. Perhaps one quick question to you, Dalia. What do you see as being the drawbacks or the downside of state provision?

Dalia Ben-Galim: In terms of?

Lord Sawyer: The taxpayer. If we increased the supply side, then what would you argue would be the difficulties that we—

Dalia Ben-Galim: I think the potential risk to that is that some parents may feel like they do not have as many choices as they do now. There is a balance in that. When you ask parents what they are looking for, when they are looking for early-years provision, they are tending to look for good quality that they will define differently from how the academics define quality. They will look for a warm, friendly, stable environment that is close to home, which is reliable and that they really like the feel of and where they feel confident and safe in leaving their children. It is one of those arguments that, if you can provide that, parents do not necessarily want 10 different options. They want to know that they have a good option. I do not know to what extent state intervention would mean that there was a lack of choice. There is also a market. That exists and state intervention would not negate the market. It would simply control and provide more stability in prices for parents. I do not think it is a trade-off in that way.

Lord Sawyer: Thanks very much.

Q46 The Chairman: Perhaps I can probe one specific point on this, which is on the use of international comparisons. I do not think you would get much for $5 a day in this country. That exemplifies that a large health warning is necessary. One of the things we have been probing a bit is whether or not there is any way of getting a picture of the cost of providing adequate childcare as a percentage of GDP. Then there is the separate issue—we are dealing with affordability—of where the burden falls. Does it fall on the state or does it fall on the individual or the employer or what? Have you any comments to help us on that?

Dalia Ben-Galim: Yes. On the Quebec case, obviously $5 or $7—and there is talk that it is going to go up to $10—is not what it costs to deliver childcare. That is a cost to parents, not the price of childcare. That was banking on there being a return and a boost on maternal employment, and there was. That programme has not cost the Quebec Government because the return on maternal employment has been so high that it has generated revenue. Other provinces across Canada are now looking at ways that they could do it slightly differently. There have been problems in its rollout, but just to answer that.

In terms of GDP, it is notoriously difficult to compare internationally. We have tried to do it. The difficulty is that the data is not comparable. Different countries spend different amounts and also classify their family-policy pot very differently. It does not account for cultural attitudes. It does not account for what has happened for generations before the evolution of services and provision. It is very difficult. I think any international comparisons are useful in terms of learning, but it is very difficult to compare like for like.

Then, on the third question around affordability, I think Naomi—

The Chairman: We will come back to that.

Dalia Ben-Galim: Yes. Naomi Eisenstadt often says we do not want to reduce the cost of childcare, we want to reduce the price of what childcare costs for parents. I think that is an important distinction.

The Chairman: I think that is half of the picture, yes.

Dalia Ben-Galim: Yes, exactly.

The Chairman: Adam, do you want to—

Adam Memon: Part of the problem is that it is total cost—both to the taxpayer and to families and parents—that is so high in the UK. Looking at the OECD data, which is not perfect, it is only the Scandinavian countries that are spending more taxpayer money on childcare. It is only Switzerland in terms of the private level.

In terms of the international comparisons, as Dalia mentioned, there are some problems there because, for example, Scandinavian countries start formal education much later than we do here, at six or seven, so they rebate that to take it into account. It is not exactly comparing like for like. I would say that, if you want to decrease prices, you definitely want to cut costs because, as far as I can see, that is the simplest way to do it.

Q47 Baroness Noakes: You have talked about price control quite a lot. I think what you mean is controlling the amount of price that the parent will pay, not controlling the price that the provider gets. When you talk about price control, you are not implying anything about costs; you are just talking about how subsidy flows through the system?

Dalia Ben-Galim: Yes, that is right.

Baroness Noakes: I think that is right. Is price control a useful mechanism to produce the right-quality results? We have seen some elements of price control in this country because the price of the free element—15 hours—is covered by prices that are set by the DfE. We understand that all that that has ended up doing is pushing up the price for the additional hours. You get into even more complex economics of making it even more complicated for parents to understand what it is they are getting for it. Do you think that price control is a valid part of a package of solutions?

Dalia Ben-Galim: I think that price control addresses the question around affordability for parents. In terms of boosting quality, there are other ways that you would want to look at how you do that. For example, the funding formula—which is how the rate for each provider is set in terms of how much money they get per hour, per child, for the free entitlement—is probably a better mechanism to think about when thinking about quality. For example, there is a quality supplement that can be attached to the funding formula where those who have higher quality would receive a slightly higher amount to reflect increased staff costs and those rates. That does not work very effectively at the moment and I think there is a larger question around quality: are there ways that you could incentivise or work with providers to improve quality through other mechanisms? I think the cap is around affordability for parents; that is not necessarily around quality.

Baroness Noakes: Are there any systems that provide incentives for cost control, i.e. do we not lose the incentives for cost control in many of these systems?

Dalia Ben-Galim: I am not sure I understand what you are asking.

Baroness Noakes: If you end up effectively saying that quite a lot of it is going to be subsidised and the parent pays only a certain amount—so the price signal is not working in an effective way—how do you make sure that you have efficient provision?

Dalia Ben-Galim: I think that is in the way that you develop policy from central Government and how it works with local authorities to deliver. At the moment, if you had a number of local authorities here or providers, they would give you a very different picture about where they would think there is scope for more efficient provision.

The Chairman: Baroness Shephard, do you want to continue?

Q48 Baroness Shephard of Northwold: Yes, continuing the theme. We have been talking about costs and, peripherally, we have been talking about quality. The two come together if we are looking at outcomes for the children. There is obviously a tension between lowering costs and improving quality, which became understood by the DfE earlier this year or at the end of last year. How should you manage that tension between lowering costs and improving quality? Is the way that you judge that to look at the outcomes for the children?

Adam Memon: The primary aim must be what is best for the children. It is clear that the quality of the care that is provided is the most important determinant as to the outcome at the end.

Baroness Shephard of Northwold: Can I interrupt? Dalia has said very clearly that that is not what parents are looking for. They are looking for something safe, accessible and affordable. They apparently are not concerned with quality.

Adam Memon: I think you can measure its—

Baroness Shephard of Northwold: I am only repeating back what you have said.

Adam Memon: If you look at polling on why parents choose informal childcare rather than formal, they put cost first of all, trust second and then other issues after that. You are absolutely right, cost is fundamental, but things like safety must be part of how we define quality. Quality, in terms of the level of teaching or whether it is done in a way which children can understand, of course is meaningless if you do not have basic levels of safety. That aspect of things must be included within how we define quality; otherwise it is not a very useful measure.

Looking at the costs, both for formal and informal childcare, it is incredibly important that it is not necessarily a zero-sum game. There is clearly a lot of evidence that if you increase salaries for childminders and nurseries it attracts more graduates, a higher level of educated people, so you would expect that to be reflected in higher prices. Interestingly, in the US and elsewhere, the relationship between cost and quality is not quite that robust because part of the reason why people go into day care and choose that profession—it sounds a bit mushy—is, as a lot of the data shows, that they enjoy seeing how babies develop, grow older and seeing the child development there. That is reflected in the fact that in the UK the salaries for childminders, for nursery staff and even for management staff, are significantly below those in Denmark, Germany, France and other countries; to some extent, if you compare pound for pound, it is half the salary sometimes. It is not necessarily the case that the quality of care provided in Denmark and elsewhere is twice as good as the quality of care provided here. Of course, there must be some relationship but it does not need to be a zero-sum game.

Baroness Shephard of Northwold: Thank you very much for that but it does not address the point that I am making. If there is going to be any state expenditure at all, then outcomes have to be part of any Government’s calculation. What I am trying to get at is, if you are looking at outcomes, what is the tension between cost and quality? Is it ratios? Is it qualifications? Is it size of groups? What is it?

Adam Memon: Unfortunately, I think it has to be a mix of all of those aspects. Certainly, qualifications are one important aspect. For example, if you are going to have higher outcomes in linguistic development you tend to find that, if you have a high proportion of the staff with high levels of qualification, that does cost more but, of course, it does lead to higher outcomes. There is a clear relationship there.

As for ratios—obviously last year that was no longer part of the political policy—I strongly believe that, if you look across OECD countries, there has to be a relationship between the number of children per staff and the revenue that raises and, consequently, how much you can pay your staff and what that means for the prestige of the profession and all of those interlinked factors. There is certainly a case for change in that. There has to be a relationship there between that and outcomes as well.

Dalia Ben-Galim: Perhaps I can add something on quality. Throughout the academic literature, quality is a combination of process and structural factors. By that I mean structural factors are around staff qualification levels, ratios and management structures, and process levels are around the ways that activities are organised, the quality of the conversations between staff and children and the variety of stimulation, so the types of activities there are on offer. That is one part of how a definition of quality can be developed.

The second part is about age appropriate provision. Sometimes we lose that in the debate. The type of provision that you want to provide for a two year-old is very different for a three and a half or a four year-old, in terms of the ratios, in thinking about those outcomes, and how you would then define quality to achieve those outcomes. For younger children, it is about stability. It is about ensuring that there is that much lower ratio in terms of care and that that relationship is consistent and nurturing. For older children, the ratios can be flexed a little bit more because it is centre-based for children to learn, develop and socialise. It is also about the professional qualification.

Baroness Shephard of Northwold: Yes, I do know all that. All of us are very aware of that. The point is: what is the outcome for the child? If the child has very good-quality childcare, does it mean that the child will have better educational and social outcomes later on? I am talking about any Government, any state provision or any policy needing to take into account how valuable the investment is in good-quality childcare—this is from the state’s point of view—and the kind of citizens that this is going to provide us with later on. We have not addressed that this morning. Is it worth doing? I know what I think. I think it is worth doing. I certainly do, and I think the more you put in at a younger age the more satisfactory a child’s educational development will be, but I do not have the proof of that. Have either of you?

Adam Memon: Last year the Department for Education produced a series of correlations between things like ratios but also quality of childcare and PISA rankings. Obviously there is a timeline there between how countries define quality of childcare and how the same cohort performs later on. There is quite a strong correlation between countries that are classed as higher-quality childcare and who then perform better in PISA rankings. Interestingly, the same is not the case for childcare ratios. There is not a massive evidence base for that yet because a lot of the reforms are coming in and people are changing, but there is some relationship there.

Baroness Shephard of Northwold: Just one small additional question. If childcare was delivered via schools—if ever that were possible—would that make it more affordable, because of access for parents, for one thing, because everybody has access to a school in one way or another? Accountability would be another thing in that equation and perhaps economies of scale and size of premises, and all of that. This is just a theoretical question because, as both of you have said, and it is the case, there is a very mixed economy in all of this provision. Theoretically, if somebody decided, “Look, let us do most of this via schools”, would that be a good thing?

Adam Memon: I think it is quite clear that if schools did provide childcare they would probably be able to provide it at a lower price than standalone day care, because you already pay for things like heating and there is already a lot of infrastructure there. On a theoretical basis, if schools were to do that it would almost certainly lead to a fall in prices. The Department for Education has done some stuff on that, in terms of providing advice and guidance to schools as to how they can develop those sorts of early education aspects. There are already things like afterschool care and schools are now open for longer hours. Not every school will be suited to that. They are not always in the right places. There are difficulties there but, certainly, for parents for whom the school is in the right place and who already have older children attending that school, I think it is quite likely to see some fall in prices, yes.

Q49 Baroness Gould of Potternewton: I wonder if I can change direction a little, because we spend a lot of time talking about formal provision, nurseries, childminders, and the concept of maternal employment—not something I disagree with—but I also think it is important to discuss the question of informal childcare. Adam, in your paper you talk about the question of stay-at-home mothers and the point is made that mothers should have the freedom to choose whether they stay at home or whether they use some other form of childcare. At the end of that paragraph is the statement, “This is clearly not the case at the moment”.

I would like you to elaborate on that and the evidence you have of the number of women—and I object to the fact that it is always “mothers”, we have to think about parents—who might want to stay at home and look after their children. What level of evidence do we have? At the same time, in the paper from the IPPR you talk about parental leave, paternity and maternity, as well as the role of grandparents and this concept of grandparental leave, which I think is hitting the agenda but I do not think is accepted yet. Can you discuss those two differing views that you are putting forward and perhaps then look at it in terms of how Government should take into account those particular issues?

Adam Memon: In terms of mothers, we should try to give them the maximum freedom possible to decide what is best for them and their families. If they want to go to work they should be free to do so and if they want to sit at home they should be free to do so. The reason I say it is not the case at the moment is that, for me, the polling data suggests that the cost of childcare and other factors is preventing more mothers who would want to go to work and who currently cannot. It is not 100% clear as to the proportion of the population.

If you look at the Ipsos MORI polling of non-working mothers, 71% of them say that they are non-working because they prefer to look after their children themselves and only 13% of them say it is because of childcare costs. Then, other polling done after that says that 54% of non-working mothers would be working if they could find affordable, convenient childcare. That is quite a large difference, but there is so much polling beyond that of non-working mothers saying that many of them would be working or they would be working more hours if they could find childcare. Of course, there are also mothers in work who would prefer to be at home if they felt they were able to as well. So it does work both ways.

That does build into the point you are making about the informal side of things as well because, even if you look at informal childcare, the DfE produced some data that said about 39% of all childcare is informal for children between zero and 14. A lot of that is grandparents, close family and friends, but even then the cost is a major issue there. If they could afford formal childcare many of them would be doing that instead of leaving them to grandparents. Some of that may be taken too far because I think there is clearly an element of trust and convenience already that you have with your own parents. If you have grown up with them you would feel more confident about leaving your children with them, and clearly grandparents still do a lot of childcare.

Earlier this month the Family and Day Care Trust—I think it was—produced some figures showing how one in seven grandparents are either leaving work or taking fewer hours or are having to take off holidays to look after children. There is clearly a lot of care provided by grandparents there. Exactly how we work that into it is still unclear but, of course, we must value the care that they provide.

Baroness Gould of Potternewton: Before I move on to Dalia, if you do not mind, do you think we should be looking at the evidence? You have quoted a lot of polls. I would love to know what the questions were for the polls, whether they were the same question or a different question that came up with two completely different findings. Before one can make a statement like, “Clearly that is not the case”, do you think there needs to be a lot more evidence produced and a lot more work done on this particular aspect, particularly if we consider whether Government should take it into account or not?

Adam Memon: It would be desirable to have as much evidence as possible before we make policy decisions, yes.

Baroness Gould of Potternewton: But do you think Government should take it into account?

Adam Memon: Clearly, yes. The more evidence the better. The more we can find out about what is driving people to use different types of childcare the more we can find out about what is creating higher costs and what is best for the children.

Dalia Ben-Galim: I think a large part of addressing your question is about employment and flexibility in employment. Many parents want to work more flexibly—both mums and dads—and we see that reflected in the data that BIS collects in terms of work/life balance surveys. Also, many grandparents who are in work want to work more flexibly so that they can be the support for their children, but also remain in work. I think a large part of your question also addresses the flexibility of the labour market and also flexible work opportunities.

The agenda here has moved again in the last few months. Last month the right to request flexible working was extended to all employees. That is obviously a welcome step, but there are some interesting schemes that you can look at abroad and here; for example, the Timewise Foundation works with employers to create flexible work opportunities and to see how to stimulate different types of employment that are not necessarily Monday to Friday, 9 am to 5 pm. In doing that, it pushes employers to think about what they are looking for and why rather than how many hours someone should be there. I think those kinds of initiatives are very informative in thinking about how people work and how it is different across the labour market, not just mums and dads but grandparents and other carers too. I think that is part of the answer to your question, in terms of flexible work and more opportunities.

Around the parental leave and grandparental leave, we found, as part of our argument for supporting paternity leave, that there is currently a real imbalance between maternity leave and paternity leave, and that is the point you made. It is not just mums bringing up children, it is parents bringing up children. Thinking about how you recalibrate parental leave could make quite a significant difference in terms of changing that culturally and also financially for families.

With regards to grandparental leave, in some European countries we see that grandparents are given formal rights, as part of the parental leave during that first year.. Most grandparents do not want to be paid to look after their grandchildren, to pick them up from school or to have a day with them, and that is pretty consistent across the data. What we do see is that when there is a penalty to employment, that is where grandparents feel they want more support. As for the idea around grandparental leave, we have proposed that an element of parental leave could be transferable. If mum was doing an apprenticeship, training, still in school or a lone parent, that would enable that additional support to help balance and protect that time for families.

Baroness Gould of Potternewton: You see a relationship between parental leave and grandparental leave, not that they would be two quite separate issues?

Dalia Ben-Galim: No.

Baroness Gould of Potternewton: You would see a relationship across?

Dalia Ben-Galim: Yes.

Q50 Baroness Noakes: My question follows on from that. While the Committee is talking about affordable childcare, obviously every time we go towards “affordable for parents” it is something that has to be affordable for taxpayers as well. If you then look at what the balance of policy should be to control the cost to taxpayers, where would the balance be between financial provision for childcare and these other aspects you have been talking about, which is: parental leave, career breaks, flexible working and grandparental leave? What is the right balance in a total policy?

Adam Memon: I do not think there is necessarily a conflict between pushing forward both of those. If you look at flexible working for mothers and fathers, the new changes that have been made, so far there has not necessarily been a take-up in terms of fathers taking leave. I guess that will change over time, but it is perfectly intellectually consistent to say, “At the same time as promoting more people working with greater flexibility we can also look at trying to cut the cost base and make childcare more affordable”. There are definitely some things we can do that would probably help both. For example, if you look at things like antenatal care, pregnant mums at the moment have the right to take time off as maternity leave to attend antenatal care. Currently fathers are not allowed to join them for that. For example, why not allow them to take time off to join the mum at the same time? Perhaps that could be offset elsewhere on other days.

Baroness Noakes: What does that have to do with childcare?

Adam Memon: That goes more to the flexibility of being at work as well. There are things like keep-in-touch days for mothers when they are on maternity leave. It was initially thought that if you increased the number of keep-in-touch days, which is the number of days they can go back to work while on maternity leave, which is a maximum of 10, you would increase the demand for childcare because they would be at work more often. That is not necessarily the case. If you increase the number of keep-in-touch days, you increase the flexibility of mothers to go back to work, but it also means that they can delay the time at which they feel they need to go back to work. The dynamic impact on childcare demand is a little bit more complicated than just the static change there. If that means that mothers feel they can spend more time at home to look after children—in terms of going back to work after 36 weeks instead of 25 weeks, for example—and at the same time they are keeping in touch with the changes at work then that is a win-win.

Baroness Noakes: I think you are saying there is not a necessity to balance; we should just provide everything.

Adam Memon: We can certainly aim to improve both affordability and flexibility. I do not necessarily see a conflict there.

Dalia Ben-Galim: In the report that we published last month, we have laid out a plan about how we would prioritise. I think that question is one of the most difficult, particularly in a time of difficult finances, regarding what you would prioritise, why and how. We have laid it out and costed it to understand what the costs would be to the taxpayer, and then, in the question that I addressed earlier, we think about how you might pay for that. The way that we balance it is in incremental expansion that is coupled with quality. If you expand everything too quickly and the quality is not there to support it then there is a high risk. If you expand maternity leave to be paid at 90% of wage levels then that would be brilliant, but I do not think that is sensible in the current economic climate. I think the priority is around paternity leave, trying to change that balance between maternity and paternity leave and tackling the gender inequalities. What we have tried to do is really prioritise—think about, “You want everything”—and then think about how you would stage that; what you would do in the next Parliament, for example, and then, beyond that, some additional priorities. I could go through them but you have them in front of you.

Baroness Noakes: Do you think a case could be made that the Government should provide financial support to parents who choose not to work in order to care for their children?

Dalia Ben-Galim: At the moment, only those who are very wealthy can afford that option. The argument we have put forward is that we want children to be entitled to 15 hours of free educational entitlement from age two. Beyond that we want the rest of the hours to be affordable. The educational entitlement is important in terms of narrowing those educational inequalities that open up quite early. Beyond that, if parents choose to stay at home, they would not have to pay for any additional hours, but those who choose to would have the option of additional support. I would not support payments for parents who stay at home. I would support more affordable childcare to give all parents the options that work for them through various points of their life.

Adam Memon: I would have some concerns about that particular policy. Some aspects of that have been tried in Bavaria, in Germany. It seemed only to have an impact on ethnic minority groups who already had ingrained cultural attitudes which meant that women had far lower maternal employment rates. It just exacerbated that problem without significantly changing anything else. That certainly needs to be taken into account.

I think there is also the point that, depending on how large that subsidy is—and I would prefer not to have subsidies at all in an ideal situation—it is unclear what it would mean in terms of the overall number of people staying at home. Many mothers and fathers need to work to provide a second income, just to keep the household running. It would need to be a very large amount for it to outweigh the income you would earn.

Q51 Baroness Kennedy of Cradley: Going back to the drive to increase maternal employment, do state subsidies for childcare improve the ability of parents, especially mothers, to go back to work, bearing in mind that we have already discussed the limitations of international comparisons? If you do think that, just go through the evidence for that that you have.

Dalia Ben-Galim: We published a paper a number of months ago, Childmind the gap, where we reviewed the international evidence on the link between affordable childcare and maternal employment rates. With the caveat that there is no causal relationship, there is lots of suggestive evidence. That is what our analysis found and also what other international reviews of the evidence have found. We can certainly see that in countries where there is affordable childcare there are much higher maternal employment rates, particularly for mums with their youngest child aged under five. I have the data here.

According to the OECD stats in 2011, the maternal employment rate in the UK was 64%; Denmark 84%; France 72%; Sweden 80%; and Netherlands 77%. So you can see that in those countries, where there is much more formal provision of childcare, the maternal rates tend to be higher and there tends to be a bigger disparity than when you look at mums with kids aged under five and mums with kids aged under three. The UK fares much lower and other countries tend to be much higher.

Having reviewed the evidence, there are three main conclusions that we came to. The first is that it is women who are at the margins of employment who would stand to have the most to gain by more affordable childcare. There is not very much difference between maternal employment rates of professional women internationally, but there are significant differences by level of qualification and educational attainment. In countries that tend to have high maternal employment rates, they also have high rates of maternal employment for women who tend to be lower skilled or have lower levels of educational attainment. That is what we call the “margins of employment”. That is quite a significant finding, if you are thinking about how to improve and how to support women into work.

So it is women who are often at the margins of employment, and more affordable childcare for parents of three and four year-olds, in order to enable mums to increase their working hours. We know that children who are three and four have 15 hours’ free entitlement. Many families find it very difficult to then negotiate work around that. They use lots of informal care and some additional paid care. What we see in other countries for three and four year-olds is that the number of hours increases with more affordable childcare, and so you get a return from the increase of number of hours. For families with children aged under three, you get the entry into work.

I think there is also a difference in terms of how old the children are, parental preferences and the labour market context. That is what the international evidence suggests. It is about margins of employment. It is about increasing hours for particular groups of women—this is all on the proviso that the jobs are there as well, but that is a whole other conversation—and also about supporting women through training and other educational opportunities to be work-ready as well.

Adam Memon: It is clear that subsidies do lead to positive impacts on maternal employment. The question is: how large is that, and does it justify higher taxes or reduced expenditure elsewhere? When we talk about a certain amount of money leading to more women in employment, if that also means fewer jobs elsewhere, because of a higher tax rate, then we need to look at the total net impact.

If you look at countries like Denmark and those Scandinavian countries, it is always important to remember that those countries already had higher maternal employment rates anyway, and there is a cultural aspect there where it is far more normal for women to go into work. We have not quite progressed to that level yet, but if you look at countries like Greece, Portugal or Spain, where childcare costs are 3%, 4% or 5% of average wages, far lower than here, they also have incredibly low maternal employment rates. It is partly because there are cultural attitudes there that essentially mean mothers tend to stay at home more, because that is just part of how they have been brought up.

So we have to be careful when comparing countries with higher subsidies, Scandinavian countries, to countries with lower subsidies, Mediterranean countries. It does not necessarily mean that those subsidies have caused those huge disparities in maternal employment. There are existing factors there.

Q52 Lord Patel: To a degree, when Baroness Shephard asked a question, you have had a discussion partly on my question. But I want to extend it a little further to focus particularly on the provision of free, early education and whether that improves the outcome for children. You might also break it down to whether that is different from age zero to three and three to five, and what real evidence there is that it does make a difference.

Dalia Ben-Galim: You have the expert sitting next to you.

Lord Patel: She will give her view to us.

Dalia Ben-Galim: Her evidence is the most informative and influential, in terms of the outcomes for children of free early-years education. Correct me if I am wrong, but the evidence is comprehensive and shows that there are benefits, particularly in the strength of the quality—so around professional qualifications of staff—and also the duration. Children who go regularly over a number of days tend to do better than children going for long hours in a particular day. There are significant findings from Professor Sylva’s work, which shows that there is a very strong relationship between early-years education and outcomes for children.

There is also additional analysis from the Millennium Cohort Study, which shows that there are benefits and that children who have experienced formal childcare have better test-score outcomes at age three. That links to the question that you asked about under three as well where there is no free entitlement. There is now for 20% of two year-olds, but up until now there had not been. There is quite a strong evidence base to build on in the UK around the early-years entitlement and also beyond that.

Adam Memon: The evidence base for that is large and robust. It is worth pointing out that taxpayer-funded early education seems to have a much greater impact on children from disadvantaged households than children from households who are better off in terms of income. That is largely because the difference between what you would receive at home to what you would receive at a day care centre or with a child minder is much larger. There are diminishing returns to that, but it is still clearly the case that—in terms of educational attainment later on, labour market status and so on—those things are clearly improved especially for disadvantaged children.

The Chairman: If I can probe a little further on this one. Is there any research or evidence that this is modified, changed or enhanced if you think about different cultural groups? Of course, we are now a very cross-cultural country with many different groups with many different home practices and so on. Does it make a difference, or has anyone researched this?

Dalia Ben-Galim: I do not know. I can look into it and submit some additional evidence if you would like. I am sure in Professor Sylva’s work there is a breakdown around ethnicity. That would be my guess and—linking to the point Adam made around disadvantage—there would be significant returns.

Adam Memon: I am afraid I am not aware of any specific analysis that has been done on ethnicity. Children who are born into families of ethnic minority status tend to low maternal employment. They tend to be more reliant on informal care as well. Grandparents play perhaps an even greater role in that environment, but I do not have any particular papers to refer you to.

The Chairman: This is probably going too far, but I was thinking of the impact in the classroom. Many teachers tell us that the greater the variety of groups in the classroom and approaches to socialisation and learning, perhaps the more difficult the task of the teacher. It might help if some of this can be brought on to a single plane by the age of three or four or whatever.

Dalia Ben-Galim: The EPPE work shows that social mix is important, and so children certainly benefit from a mix in terms of being from a variety of backgrounds. I guess that is part of the point of it being a universal provision: it hopefully leads you towards a greater social mix and diversity, but that is for children and outcomes. What you are saying is a little bit different, around teachers.

Q53 The Chairman: Yes. If you do have any evidence lurking in your statistics on this we would very much appreciate receiving that.

This is a policy question. How far should a Government be aiming to recoup some of the costs of childcare through the enhancement of employment and, therefore, tax revenues? Is this realistic or is it just one of the elements in the complex picture?

Dalia Ben-Galim: I think I have already addressed that. It is definitely one of the elements, and our modelling suggests that there is tax revenue and benefit savings to be accrued as a result of a boost to maternal employment rates. In these difficult economic times, it would certainly be part of the equation of what you would want to think about in expanding provision. There are caveats in terms of implying that there are jobs there and they are good-quality jobs, but I do think it is an important part in thinking and making the argument for why investment is so important.

Adam Memon: Yes, it is one important aspect of things. I would be very surprised if it was entirely self-financing. I have not seen anything that suggests that, but certainly Government should ensure that for every taxpayer’s pound spent that it gets the most out of it. Clearly, increasing maternal employment has significant benefits, so you would want to see stronger growth there.

Q54 The Chairman: There are two elements to this sitting there waiting for a response. One is that, at the moment, there is a very significant and laudable creation of new jobs, but they are not high-revenue or high-income jobs. I wonder how far the predictions that have been made assume a certain level of pay, for example. That is one and that relates to the very specific figure that I think both of you have quoted—but certainly Dalia did—of £750 million with a 5% increase in employment. Is the breakdown of that figure dependent on assuming what the pay rate will be or does it include a lot of variations?

Dalia Ben-Galim: The modelling of that data is based on the labour market as it looks currently.

The Chairman: Now?

Dalia Ben-Galim: Yes. It would be a five percentage point increase in the maternal employment rate based on current maternal employment patterns. We have tried to reduce the variation and make fewer assumptions about what might happen in the future and predict it on current employment trends. I think that addresses that question. The £750 million is the amount you would get. I think it would be slow. It is not on day one that you can recoup £750 million.

The Chairman: That is a related point, yes.

Dalia Ben-Galim: I do think that, if you compare the maternal employment rate across countries, then you do see that there is scope to boost it in the UK with the creation of new jobs. That is where I come back as well to flexibility and to parents having more options in terms of thinking about how work might benefit them, not only now but in the future, as a career path and a trajectory rather than simply as a job for the here and now.

The other interesting calculation, which I have not talked about, is the one we did on the increase in part-time to full-time work, which I answered in terms of that question. The part-time employment rates for mums in the UK tend to be at a high level. So moving some mums into more full-time work that was also flexible could also generate a fiscal return. If there was a five percentage point increase—which is about 130,000 mums—would generate £700 million. I think there are interesting considerations about how to support women into work but also how to support women to build up more hours in work. Then you get a much more realistic picture of what is possible.

Adam Memon: I have not gone through Dalia’s model, so I am afraid I could not comment too much on that. But certainly it is the case that there is scope for a higher maternal employment rate. It certainly would lead to higher revenue. I am not sure what I could add to that.

The Chairman: We understand that. It is just how specific you can be in the formulation of policy and, indeed, on the balance between subsidy and income to the Exchequer. Thank you very much indeed. Also, thank you for the recent report you have done. I understand there may be another paper coming from CPS in due course.

Adam Memon: Yes.

The Chairman: We would appreciate receiving that, and also any further research that you have lurking around that we have somehow not managed to identify or mention. We have had very good advice on all of that, as you are well aware. You will receive a copy of the transcript. Please let us have any comments quickly and any further reflections. If there are points that you want to make—which somehow did not come out or you could clarify—please let us have them. Thank you very much.