Written evidence submitted by the Confederation of British Industry (CBI)
The CBI welcomes the opportunity to provide evidence to the Education Select Committee’s Inquiry into the support for childcare and early years. The CBI is the UK’s leading business organisation, speaking for some 190,000 businesses that together employ around a third of private sector employees. This response reflects the views of businesses of all sizes and sectors from across the CBI’s membership.
Economy wide labour shortages are holding back growth
Throughout 2022, vacancies across the economy were persistently high, reaching record highs of 1.3 million. Labour and skills shortages continue to be two of the most common reasons why firms are struggling to grow, while increasingly becoming a brake on business investment. If left unaddressed, labour and skills shortages could see the economy lose around £30bn-39bn annually.[1] 75% of respondents to the CBI’s Employment Trends Survey say that they have been hit by shortages; of those affected, almost half (46%) have been unable to meet output demands, more than a third (36%) have had to make changes to or reduce the products or services they offer, and a quarter (26%) have reduced planned capital investment in other parts of the business.[2] The extent to which firms have been in crisis response to shortages has made it harder for them to invest in productivity-boosting measures like automation or skills. At the same time, higher economic inactivity among the working age population has increased the focus on how to remove barriers preventing people who want to work from getting a job or increasing their hours. The most common causes of inactivity among those who say that they want a job are long-term sickness (33%), caring responsibilities (21%) and studying (21%). Of those who are economically inactive, 1.7 million would like to work – 20% of the total inactivity pool.[3] This is a key opportunity for the government to seize. With the right interventions, we could activate some of this pool and bring them back into the labour market as part of a wider strategy to ease shortages.
Childcare provision is at a crisis point
Existing childcare provision, specifically the Universal Free Offer and Extended Offer have excellent take up rates and support working parents in employment. But childcare provision is at a crisis point. The 30-hour free offer is chronically underfunded[4] – with huge detrimental impacts on providers and consumers, as providers try to deliver high-quality care with a funding shortfall and parents pay extortionate costs to subsidize the system.[5] The cost of childcare is spiralling for parents: the cost of a part-time nursery place for a child under 2 grew by 60% in cash terms between 2010 and 2021 – twice as fast as average earnings, and much higher than the 24% growth in overall prices in the same period.[6] Full-time nursery for children under the age of two now costs almost two-thirds of a parent’s weekly take-home pay in England.[7]
At the same time, thousands of nursery providers are running at a loss or closing amidst increasing financial pressures and are facing significant staff shortages. Between April 2021 and March 2022, there was a net overall decrease of around 4,000 childcare providers, representing the largest decline since 2015–16.[8] Since 31 August 2015, the number of providers has fallen by 22% (19,100).[9] By 2021, the total number of paid staff working in childcare and Early Years provision had dropped by 15,600 since 2019.[10]
Increasing childcare provision can reduce inactivity...
Against a backdrop of labour market shortages and a cost-of-living crisis, government focus on addressing rising childcare costs and ensuring working parents are incentivised to return or remain in the workforce will be critical. An affordable, accessible and high-quality childcare system is much needed to ensure that working families can progress and thrive in work. Prohibitive childcare costs are exacerbating the cost-of-living crisis, contributing to labour market shortages and dampening economic output by constraining the number of hours parents can afford to work. Spiralling childcare costs also have a detrimental impact on workplace equality; the gender pay gap significantly widens for the 40-49 age group in the years after parents have their first child, showing that women continue to pay a penalty for having children. While we’ve made significant progress in improving maternal employment in recent years, the ONS has found that the number of women not working to look after family has risen by 3% in the past year, the first sustained increase in at least 30 years after decades of decline.[11] This equates to 43,000 women dropping out of the workforce in the last year alone.[12] This contributes to rising inactivity and exacerbates labour shortages.
Businesses have a fundamental role to play in creating inclusive workplaces that ensure all talent can progress. They are working hard to support working parents with flexible working policies as well as enhanced maternity and paternity leave and pay packages and, in some cases, offering childcare grants to support staff where they can afford to do so. For example, Sony Music recently announced that it will offer grants to support their employees in paying for childcare to improve productivity, boost talent acquisition and crucially allow women to keep working once they become a parent. The landmark scheme entitles parents to claim funding towards childcare costs during working hours in correlation with their salaries, meaning lower and middle earners can claim up to £15,000 per year. Others have championed flexibility, like Zurich who now advertise all roles as either part-time, full-time or job share. Many now offer enhanced parental leave and pay, with companies like Aviva introducing equal parental leave to all employees with six months at full basic pay.
More and more businesses are now speaking to the CBI about the need for urgent action to address the cost of childcare provision in the UK. Presently, it’s one of the highest in the OECD and almost 3 in 10 mothers (29%) with a child aged 14 years and under have said they had reduced their working hours because of childcare reasons.[13] Business and government need to work together to support parents to work more hours where they want to, facilitating a greater supply of labour into the market. There are millions of working parents who are prevented from taking on more hours of paid employment due to childcare issues, leading to billions in lost economic output.[14] If the UK is serious about growth, we simply cannot afford to lose more parents from the labour market.
...and advance social mobility
An investment in childcare to boost labour supply today, is also an investment in social mobility and long-term growth. Early years education is critical social infrastructure. There are long-lasting consequences of a child’s early year’s development. Children who start school ready to learn have better life chances. Those who fall behind by the age of five have lower average educational attainment in the future[15] with lower attainment throughout primary school predicting lower achievement at GCSE level.[16] The attainment gap persists throughout education and into work, with significant impacts on social mobility. High-quality childcare in the early years helps to close the attainment gap between lower-income children and their more advantaged peers, reducing inequalities and creating benefits that last throughout a child’s time in school and beyond.[17] The socio-economic prizes the UK economy could seize from greater childcare provision are significant, with the expected return on investing in early years interventions estimated at 6-10% per year.[18]
Actions to take to support growth
Government needs to go further to stop the prohibitive cost of childcare preventing parents from increasing their hours to participating in the labour market, particularly for parents with children aged 1 and 2. At the Spring Budget, the government should announce: 1) an Independent Review to investigate the UK’s childcare system with the objective of reducing the service cost for parents whilst maintaining high quality provision, creating a sustainable funding and employment model, and increasing parental employment, and 2) an increase in funding to the existing system to ensure providers are receiving funding that reflects the true cost of service provision while extending provision for 3- and 4-year-olds to all 1- and 2-year-olds, taking into account their differing needs.
January 2023
[1] CBI & REC, Overcoming Labour Shortages: How to Create a sustainable Labour Market, 2022
[2] CBI, Employment Trends Survey, 2022
[3] ONS, Labour Market Statistics, January 2023
[4] Ceeda, Counting the Cost in Spring, 2019
[5] IPPR, A family Stimulus: Supporting children, families and the economy through the pandemic, 2020
[6] IFS, The Changing Cost of Childcare, 2022
[7] BITC and the Prince’s Responsible Business Network,
Weekly childcare costing: some parents more than half of their take-home pay, 2022
[8] ONS, Childcare Providers and Inspection, June 2022
[9] Ibid
[10] Ibid
[11] ONS, Economic Inactivity by Reason, October 2022
[12] Ibid
[13] ONS, Families and the Labour Market, 2022
[14] Women’s Budget Group, Childcare and Gender, 2022
[15] Field, F., The Foundation Years: Preventing poor children becoming poor adults, 2010
[16] Goodman, A. & Gregg, P., The importance of attitudes and behaviour for poorer children’s educational attainment, 2010
[17] Nuffield Foundation, The role of early childhood education and care in shaping life chances, 2021
[18] Ibid