A Radical Overhaul of Childcare

My Article in the Times from March 2023

From parents to providers, you would be hard-pressed to find anyone who’s happy with the UK’s childcare system.

Comprising a jumble of Heath Robinson schemes, initiatives and regulations, all of which have been tinkered with over the years, the system has produced the worst of all outcomes: a complex and inflexible mishmash that contains some whopping absurdities. For instance, the tax-free childcare scheme is unavailable to couples in which one partner earns more than £100,000, but if both earn £99,000 it’s all systems go.

The result is a generation of young couples faced with childcare costs that are among the highest in the Organisation for Economic Co-operation and Development and sometimes higher than their mortgages. They’re delaying having children or not bothering at all, which is tough on them and terrible for the economy.

On the provider side, things aren’t much better with childminder numbers in steep decline, from 70,000 in 2000 to fewer than 30,000 today, all of them complaining about the bureaucracy of up to seven different payment schemes.

As operating costs mount and places become increasingly hard to find, prices inevitably rise. Many providers have found ingenious ways to charge parents over and above their government-subsidised allocation, leaving parents complaining that — paradoxically — their childcare costs make work unaffordable. This dysfunction means there is only one childcare space available for every three children aged 0-5, and two in five working families are struggling to find sufficient childcare.

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If we are serious about supporting people to have children and get back into work, a major childcare overhaul is clearly the right place to start. Here is how we start.

We need to begin with the tax system. I have often wondered why we recognise children in the welfare system but not through our taxes. In that sense, they’re treated like a burden that needs offsetting rather than a cause for celebration and an economic bonus. To fix that, we could abolish child benefit and simply gave parents a tax-free income allowance of, say, £15,000 per child up to 11 years old. If you are a couple on £30,000 each with two children, for instance, this would mean that with your existing personal allowance, you could jointly earn £55,140 before you paid a penny to the government.

In doing this, we would at a stroke cut tax for those who need it most and transform the childcare landscape in three ways. First, we would give parents significant assistance in a simple and direct way with minimal bureaucracy in the years when they need it most. Second, we would give them choice and flexibility as to how they spend the money and on what form of childcare, whether in the home or outside it. And third, we would be directly tackling a barrier to work for so many, particularly women who often find their working life impossible either practically or financially.

Support for lower-paid workers could be maintained through universal credit and the relief would be tapered for high earners as it is with the existing personal allowance. The bill for this allowance would be large, however, net of the £12 billion child benefit budget and £5 billion childcare budget, it would be a manageable and highly profitable investment in our economy.

So rather than collecting money from families in taxation, losing some of it in administration and then returning it to them as childcare, we could simply leave more of it in their pockets to do with as they see fit.

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But there is little point giving people more money to spend on care for their children unless we also fix the broken market so they can find the childcare they need. Reversing the downward spiral in childminder numbers is an urgent mission.

In fact, there’s a pretty simple way to fix the supply side of the market.

Back in 2014, a Conservative government legislated to create childminding agencies to register and quality-assure childminders. It was exactly the right — and Conservative — thing to do: enabling new markets to provide solutions people need.

But these agencies have had to compete with their government-subsidised regulator (Ofsted) while also delivering higher standards. In short, we created a playing field, but it was never level. As a result, there is only a handful of agencies in the country and yet they are our only proactive recruitment tool.

In the present system, Ofsted receives about £700 a year per childminder simply to inspect them once every three to six years. If we gave that money to childminders as a training and support voucher instead, childminding agencies could provide those services while also fulfilling their regulatory requirements. And by giving a further one-off payment to those agencies of, say, £1,000, they could market, recruit and onboard more childminders. This would reverse the downward spiral very quickly.

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The cost to the Treasury would be a little over £30 million — a tiny investment that would be more than compensated for by the economic activity of those released into the workplace.

In my experience, Whitehall is bad at abandoning lousy schemes that simply aren’t working. As ministers cycle through a department, often with alarming frequency, each inherits their predecessors’ ideas and projects and adds one or two of their own to the roster. Very few cancel anything and fewer still build ministerial careers on doing less.

As we look towards the budgetJeremy Hunt has the chance to do more than tinker. By being bold he can boost the UK workforce, satisfy the pressing calls to cut tax and prove that less can be more in a policy area that intimately affects families across the country, and which is so desperately in need of reform.

Kit Malthouse is the Conservative MP for North West Hampshire former secretary of state for education