Budget boost to childcare but questions remain

Chancellor Jeremy Hunt has announced that families in England will receive major boosts in free pre-school childcare over the next two years, but questions remain over whether the government will provide enough funding to back up its big announcements.

Hunt unveiled a package of childcare measures in today’s Budget, including a pledge to provide 30 hours of free childcare a week for working parents with children aged nine months to two years. He also pledged to boost funding for the government’s existing “free hours” childcare schemes, which mostly apply to children aged 3-4. 

“I don’t want any parent with a child under five to be prevented from working if they want to, because it’s damaging to our economy and [it’s] unfair, mainly to women,” Hunt said in his Budget speech.

The new 30-hours scheme for babies and toddlers will be introduced in stages between April 2024 and September 2025, with the full cost of the scheme not being paid until after the next general election, and will be open to most families where all adults are working at least 16 hours a week. All of the government’s “free hours” schemes cover term-time weeks only.

The UK’s patchy and expensive childcare system has become a battleground ahead of next year’s election. Prime Minister Rishi Sunak has come under pressure from his own MPs, business lobby groups, childcare providers and families to stump up investment for the sector. The opposition Labour party has pledged free childcare from the age of nine months to 11 years, although its plans are not yet fully costed.  

The government said it would provide over £4.1 billion by 2027-28 to fund the 30-hours scheme for babies and toddlers, but it is not yet clear if this will be enough for such a huge expansion in free childcare. Hunt also announced an additional £204 million to plug funding gaps in the existing “free hours” schemes for 2023-24, rising to £288 million the following year – figures that fall far short of what some economists say is needed.

“Expansions of so-called ‘free childcare’ without adequate investment are a recipe for utter disaster.” 

“The additional funding announced today…raises serious questions about the government’s entire approach to costing this policy,” said Neil Leitch of the Early Years Alliance (EYA), which represents over 14,000 childcare providers in England. “We know from bitter experience that expansions of so-called ‘free childcare’ without adequate investment are a recipe for utter disaster.” 

Leitch cited Women’s Budget Group research, which estimates that the government’s existing “free hours” schemes need £1.82bn in additional funding in 2023-24.

Thus far, one of the key ways in which providers have plugged the funding shortfall is through cross-subsidy via the price charged to younger children. That option is now being closed off.

UK families pay some of the highest childcare costs in the world, largely because the government invests relatively little in this sector compared to other countries. Many families also struggle to find places at all – England’s councils are seeing rising childcare shortages across several categories, a survey from the charity Coram Family and Childcare showed last week, as nurseries and childminders struggle to make ends meet.

The government already offers all parents 15 hours of “free” childcare per week for 3-4-year-olds, and up to 30 hours for most working parents – but it does not provide nurseries and childminders with enough funding to carry out these offers. Childcare providers thus face shortfalls worth hundreds of pounds per child per year, leaving them to either offer these spaces at a loss, charge parents top-up fees, or stop offering them.

Relaxing the ratios – in the face of widespread criticism

Hunt also announced that the government would “relax the ratios”, enacting a proposal that has been in the works for several months despite widespread criticism from childcare providers, families, and some Conservative MPs. England’s minimum childcare staff-to-child ratios for two-year-olds will move from 1:4 to 1:5, with the aim that providers can take on more children without paying for more staff. 

The government also published the results of its consultation on changing the ratios today, showing that the vast majority of respondents opposed the move. Nurseries have repeatedly warned that relaxing ratios would be unsafe for children and would not reduce fees. Only 13% of childcare providers said they would switch to the new ratios if the rules changed, and only 2% said it would result in lower fees, according to an EYA survey last year.

“Hunt will massively undermine what he is offering on childcare if his proposal includes increasing ratios…Parents don’t want this. Providers don’t want this. Workers don’t want this,” Women’s Equality Party leader Mandu Reid tweeted this morning, ahead of the Budget announcement.

While Hunt’s announcements are likely to increase families’ demand for childcare places over the next two years, it is not clear how they will boost supply. Almost two in five nurseries expect to operate at a loss this year and closures accelerated in 2022, National Day Nurseries Association data show. Nursery staff and childminders, who are predominantly women, often have precarious roles on low incomes, which has forced many to leave the sector.

The childcare package also included important reforms for low-income families – parents on Universal Credit will no longer need to pay childcare costs upfront and claim them back later, and they will also see the cap on the childcare costs that are covered rise to £951 for one child (up from £646) and to £1,630 for two children (up from £1,108).

Other key takeaways for working parents

Alongside the headline offer on free childcare hours, today’s Budget also contained several other measures that affect working parents. These include:

• Schools and local councils will receive increased funding to offer more wraparound care.
• New childminders will receive a one-off “incentive payment” of £600-1,200 to address shortages in this profession.
• People working less than 19 hours a week on minimum wage will come under a more intensive job-seeking regime, meaning that if they don’t seek more hours they could face benefits sanctions. This is an increase on the current level of 16 hours. Many mothers work part-time due to caring responsibilities.
• The Universal Credit sanctions regime will be strengthened “by providing additional training for Work Coaches to apply sanctions effectively…and automating administrative elements of the sanctions process to reduce error rates and free up Work Coach time”.
• Gingerbread, the charity for single parents, welcomed the Universal Credit reforms on childcare payments, but expressed concerns about extending the more intensive job-seeking regime. The charity said: “The Chancellor’s approach risks pressurising parents into low-paid, low-skilled, precarious work – at a time when three-quarters of children in poverty are in working households…It’s especially concerning that job-search requirements will be tightened for parents of young children on Universal Credit, with no recognition of the constraints on them as primary carers, a shortage of funded childcare places during job preparation and of funded training opportunities.

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