CEY1476

Written evidence submitted by Dr Jana Javornik

Dr Jana Javornik, Leeds University Business School

Bio: I am a public policy scholar and policy analyst. I focus on comparative work-family policies and their impact across social groups and welfare states, and opportunity gaps. Geographically, I focus on the United Kingdom, the Nordics, Central and Eastern Europe, having spent time in policy making.

General points

The UK’s childcare system is inefficient and unsustainable. Local authorities do not supply enough childcare and the majority fail the disabled children. A shortage of supply, prohibitively high costs for parents, wide regional variation, and negative impacts on women’s employment and child poverty demonstrate the urgency to develop a supply-led system with capped fees based on a sliding-fee scale.

Market failure makes parental share of childcare costs in the UK one of the highest in the OECD. Much of childcare is delivered by the private and not-for-profit sectors. Over the first 18 years of their children’s lives, couples in the UK spend an average of £157,562 household income on children, a lone parent over £208,000 (CPAG, 2022). Childcare comprises around 60 per cent of the lifetime cost of a child for a couple working full time, compared to around 40 per cent in 2012.

Motherhood is the game changer because care-related policies have gendered effects. Both parents increasingly have careers, not just jobs. However, it remains embedded in the ‘culture of social obligation’ that women are the primary caregivers. This ‘gender contract’ affects women’s opportunities and limits their possibility to compete with men for the (best paying) jobs. Moreover, it constrains fathers’ parenting possibilities. Such division of unpaid work is not trivial, especially for women, who remain most likely to accommodate their economic and other activities to carry out family responsibilities.

Motherhood- and care-related penalties on employment and earnings are high and translate in higher pension gaps. Women leave the labour market in significant numbers at several points in their working lives and experience difficulties in returning to work after maternity leave or career breaks (Javornik 2017). They are more likely than men to cut the number of hours or leave the job when family needs arise. This means they leave employment at different stages, especially when working hours and workplace requirements are difficult to manage alongside caring responsibilities. The implications are further pronounced when women have more children and provide care to other dependants, contributing to their cumulative disadvantage across life. Ongoing benefits disparities and barriers affect women’s lifetime incomes in work and retirement. The gender gap in the labour market is stark. Mothers returning to the labour market from maternity leave may find their career progression hampered by even short periods of leave and part-time working. Thus, for some, the decision to take leave from work is an (non-)option on which to fall back instead of being a first choice, especially when childcare services are limited. Once outside, women face difficulties getting back in; even a few years away has a significant impact on their lifetime earnings and pension rights.

Britain is failing to make the best use of its talent and workforce potential, especially mothers, and needs to get better at it. The position of women in the UK labour market is of long-standing concern with progress made over the past half century but persistent ongoing challenges on multiple fronts including occupational segregation and gender imbalances in pay, promotion, and representation at senior levels. The disconnection between girls’ overall superior performance at school and in higher education, and their subsequent diminished Many work below potential (failing to utilise all their skill, experience or qualifications), often ‘stuck’ in low-paid, part-time jobs which they take up because of their better fit with caring roles. A reduction in the number of skilled workers from overseas has forced the government and businesses to invest more in training British workers. The Women and Work Commission estimated that under-use of women’s skills cost the economy between £15 and £23 billion a year. Addressing the career break penalty could boost female earnings by £1.1 billion a year, equivalent to £4,000 per woman. Higher earnings and spending power of women could generate additional gains to the UK economy of £1.7 billion.

Policies on childcare (parental leave and services) are two sides of the same coin that set ‘the rules of the game’ for parents. Parents view and experience public measures as a ‘package’ that either supports or constrains their options following childbirth or adoption. This frames women’s return to employment, while other work–family policy measures (working time, workplace flexibility) frame the ways in which women return to work, and how parents combine multiple roles. Moreover, it reflects a cultural script for socially acceptable allocation of childcare between the family and the state, and thus for ‘proper’ parenting.

Time and again research on welfare to work programmes highlighted that childcare is a barrier to work when parents are unable to find quality childcare before they move into work. Critically, significant part of the state-funded help for childcare is tied to being in work. This suggests that the government sees childcare largely as a support strategy for employed parents. But for parents in education, training, seeking a job or starting a business, having quality childcare in place is essential before they can undertake these activities. If the government is assuming equal economic participation of parents and non-parents, of both men and women, then limiting access to childcare intensifies a segregation between employed and unemployed, and those with uneven working patterns, such as those with shift work or zero-hours contracts. Framing the policy this way ignores children’s needs, disrupts children’s daily lives (as parents move in and out of work) and puts high pressure on parents. Free places for 3-year-olds helped only a small number of women into work was no surprise: entitlement to 15 free hours largely offered a discount on services families already were paying for, rather than helping more women into work (IFS, 2015).

Parental share of childcare costs amongst the highest in the OECD, with supply shortages and wide regional variation

Childcare costs operate in the same way as a reduction in female wages: the higher they are, the lower the probability of women working. High childcare costs, coupled with cuts in Working Tax Credits and Child Tax Credits, reduce income gain for many families; even well-paid professional women report that after paying childcare, tax, and national insurance contributions, they see little of their after-tax earnings (Yerkes and Javornik, 2019). In addition to prohibitively high costs, a significant mismatch between service hours and working hours further creates tensions in family’s daily life and often leads to women, not men, reducing work hours or leaving the labour force altogether. This means that women with care responsibilities are exposed to lower pension benefits and higher poverty risks in old age. Many want to switch to flexible work after maternity leave, but this option is not offered by many employers; where it is available, the penalties in terms of career progression are perceived to be prohibitively high.

The UK’s demand-priming approach is too complex, inefficient, unsustainable and provides a low baseline of provision compared to other countries. UK childcare is among the most expensive in the world. Over the first 18 years of their children’s lives, couples in the UK spend an average of £157,562 household income on children, a lone parent over £208,000 (CPAG, 2022). Childcare comprises around 60 per cent of the lifetime cost of a child for a couple working full time, compared to around 40 per cent in 2012. After accounting for government support, it represents 26% of average household incomes, compared to an OECD2021 average of 9%, in a family with two-earner family earning 67% of the average wage (OECD, 2023). The cost of non-parental childcare is about half of women’s median full-time earnings for a two-earner family with two children in care (similarly to Japan). While support programmes reduce the costs for low-income families, out-of-pocket costs sum to a large share of earnings for low-paid parents, particularly single mothers (OECD, 2023). High childcare costs contribute to inequalities in childcare use across income groups: children under the age of 3 in low-income households are one-third less likely to participate than those in high-income households. Mothers, who in many households perform the bulk of care work, are hit hardest.

A salient aspect of affordability is whether a country focuses on direct funding streams to providers, and/or uses means-testing and caps parental fees based on a sliding-fee scale (Javornik, 2014). Unlike the relatively standardised and supply-led childcare arrangements in most EU countries, in the UK parents are reimbursed through the tax and benefit system for childcare purchased in the open market, where fees are set by providers to maximise profitability. Parents can receive financial help directly and other subsidies go directly to childcare providers through the “early years entitlement”. Retrospective reimbursement through the tax and benefits system is inefficient and a deterrent for many families and an array of actors operating across sectors and funding mechanisms add to high costs. A ‘supply-led system’ opens space for parents across socio-economic groups to access childcare via direct funding. In contrast, the demand-priming approach, where parents receive financial help directly through complex and expensive funding mechanisms and operating rules are set by providers to maximise profitability, creates childcare gaps (e.g., Brennan et al. 2012). This increases costs for parents, and the level of household income and/or childcare subsidy, tax allowance and employers’ assistance become crucial. Furthermore, child-related tax deductions are not available at the time when parents incur childcare expenses, but, conventionally, in the following fiscal year. Affordability is therefore particularly relevant for low-income and single mothers/parents with limited earning prospects. Financial hardship limits price elasticity of demand, with affordability being a salient feature that either marginalises or remedies class and gender inequalities. However, we know little about the demand across class; it would be prudent to investigate this further.

The UK belongs to the ‘marketized country cluster’ (e.g., NL, Australia, Ireland). Here, childcare services are most expensive, with the UK running the most expensive childcare market in the OECD. In Australia, dual-earner parents pay 15.7% in out-of-pocket childcare expenses, although childcare costs vary greatly (ABC, 2019). Dutch parents spend one-fifth of net family income, and British parents an astounding one-third of net family income on out-of-pocket childcare expenses. In the UK and Australia, childcare is offered by a mix of for-profit and not-for-profit childcare businesses, operating within a mixed market economy. Fees are set by the providers to maximise profitability. Behind such provision lies the expectation that the market creates incentives for providers to offer more choice and competitive pricing, leading to a better balance between supply and demand. While parents are reimbursed through the tax and benefit systems for services purchased in the open market, support to parents is limited (Lloyd, 2015). Prohibitive childcare costs hinder capabilities across social class and gender, when low-income families opt for family care (usually taken up by mothers). Given the focus on market operation in the UK, there is an array of actors operating across sectors (private, voluntary and non-for-profit organisations and local council services). In Australia, a country with a similar system, the dominance of a market mechanism shifts the focus from a supply of non-profit childcare services embedded in local communities to a smaller number of commercial centres; the lack of coherence across settings reduced parents’ capabilities because private businesses are focused on profitability. Similarly, the absence of well-paid parental leave in these countries leads to reduced childcare capabilities across gender and class: parents opt for part-time formal care, rely on informal care, and mothers’ willingness to reduce work hours, which further leads to significant gender inequality in paid and care work (Javornik and Yerkes, 2020). Public childcare support in the UK primarily consists of cash benefits or tax concessions, often on an income-tested basis. Public provision or government subsidies to providers can coexist with a market-based provision but are typically restricted to services aimed at the most disadvantaged families. Market-based systems have some advantages: agility, including ability to quickly respond and expand supply in line with (profitable) demand, is one. However, a reliance on the market means that government has less control over fees charged. Without fee regulation or well-designed public benefits for childcare use, net costs become very high. Heavy use of the market also exposes service provision to market forces. The experience of ABC Learning in Australia, which collapsed during the global financial crisis in 2008, illustrates the risks involved with relying on private services (OECD, 2020).

In contrast, the ‘public-provision group of countries’ (the Nordics, Belgium, France, Slovenia) have adopted an income-based sliding-fee system. This means that maximum fees are generally set by the state, with a lower payment ceiling and discounts for certain groups (e.g., low-income parents, single parents, and large families). In these countries, municipalities can introduce additional discounts and charge differently but within the national guidelines; this closes the gaps across municipalities. While parents favour the existing model over private provision, it seems to disadvantage middle-income families: while high-income families benefit from the ceiling, low-income families can have fees waived completely (Javornik and Yerkes, 2020).

Childcare cannot be an afterthought

Childcare and early education frame the possibilities for later life. Strategically investing in quality childcare will yield significant returns for future generations. The future government should commit to a sustainable childcare strategy that will deliver for parents/carers, and, crucially, for children. Priority needs to shift away from demand-priming through cash transfers and a focus on subsidies for parents in work towards funding and developing a supply-led system with means-tested and capped fees based on a sliding-fee scale. Direct funding and provision of quality childcare is a proven tool for poverty reduction and more equitable take-up.

Childcare policy reflects societal sharing of care responsibilities and obligations – who has access to affordable quality childcare is an outcome of government decisions. The failings of current policy limit families’ choice and force parents to craft their own solutions, leaving too many disadvantaged. The forthcoming General Election is yet another opportunity to set out a vision for the future and decide whether care for children – the bedrock of our society – is indeed a shared social responsibility. To respond effectively to the needs and requirements of a group of women returning to work, public policy should adopt an approach focused on the whole life course, not just a part of it.

Legislative change are instrumental in affecting positive change for women’s opportunities in life and particularly in the labour market. The extent to which childcare facilitates maternal work is increasingly recognised as an important component of service quality. But provision has been piecemeal; the complexity of subsidies combined with inadequate high quality provision results in patchwork arrangements not suited to families’ needs. A very high take-up of the Early Years Entitlement is a clear indicator of high demand for quality childcare services. That it is limited, however, conflicts with the reality of their working life, as well as with the tax and benefits system which only recognise employment of 16 or more hours. This disparity is likely to become more pronounced with in-work conditionality under Universal Credit, which compels recipients to take on extra working hours. The increase in casualised and zero hours contract work means that it is even more difficult for families to plan care arrangements, with time required to travel between childcare and places of work being another, often hidden, factor.

The restructuring of childcare pays for itself through reduced administration costs, jobs created and improved tax revenues. Increasing affordable and quality childcare raises the probability of women working as their reservation wage decreases, especially of lower skilled mothers. To illustrate, a 10% increase in childcare boosts their employment by 14 percentage points, relative to a 7-percentage point increase in the employment of women with higher levels of education (Del Boca, 2008).

Reframing childcare as “early years education and care” and time for play key to a progressive childcare system. By repositioning childcare as an educational programme “for the poorest”, by taking playtime out of the picture, the system will not contribute to a broader vision for early learning and care, associated with nurturing, safety, play and creativity – all necessary preconditions for wider support for and use of public childcare. It is also contrary to the direction of other countries known for high-quality childcare that have based their models on pedagogical principles, such as Denmark, Sweden, Finland, and Slovenia. Along with availability, affordability, accessibility, flexibility, and quality, ensuring that childcare uses practices that are developmentally appropriate to each age group should be a critical principle guiding debate about the early years.

Well-crafted policy and legislation continue to be vital in addressing the ongoing challenges but a new emphasis on policy and practice working together is essential. The COVID-19 pandemic has demonstrated the importance of accessible affordable quality childcare. Access to high quality jobs and equal opportunities for women who now make up just short of half the workforce is vital as we search for productivity gains in the UK. The government should increase direct social investment in childcare, improve targeted support and introduce price regulations and guidelines to ensure that public support reaches the groups who need it most. To put the UK’s childcare cost crisis in perspective, it is worth looking to how other countries, many of them Nordic, have forged ahead with making universal, quality childcare a priority and what that means for their welfare, well-being, prosperity, and wealth.

Childcare is a strategic political, social, and economic imperative. It is likely to be a key battleground for the UK’s next general election, and parties should start convincing the electorate that they are serious about transforming childcare by committing to a universal quality childcare service. Promises to entice female votes? Perhaps, but policy decisions in this area affect us all, including the fathers, grandparents, and taxpayers in general.

January 2023