The Financial Fairness podcast

Guests: Abby Jitendra, Joseph Rowntree Foundation, Bel Guillaume, Onward

May 2023

In this episode we are joined by Abby Jitendra and Bel Guillaume, they discuss their research on childcare and the government's recent announcement on increasing funding for childcare. Mubin asks them about the current childcare system works, how the UK should improve childcare and what they think of the government's proposals.

Why does childcare cost so much? Will the government's childcare plans solve the childcare crisis? How do other countries manage their childcare costs? Will everyone benefit from the government's new plans? How do we ensure quality childcare? All these questions and more are tackled on the podcast. 

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Transcript

Mubin: Welcome to the Financial Fairness podcast with me, Mubin Haq.

The government recently announced future changes to childcare which should make it easier for parents to work. We will discuss what those changes are, how they will work and if they go far enough.

Joining me today are Abby Jitendra, from the Joseph Rowntree Foundation and Bel Guillaume, from the centre-right think tank Onward.

Bel, so if we can start with you. You've done this report on childcare recently. And one of the things you say in there is that people spend huge amounts of money on childcare typically double the amount they spend on the weekly food shop. Why does it cost so much?

Bel: So you're totally right, in that, we found that it's a huge expense for families. So we did some polling as part of our report and we found that nearly a third of families said that childcare is one of their most expensive costs behind things like housing, energy bills, and food and drink.

The most obvious driver as to why it costs so much for parents is kind of simply that we just have quite a low level of public subsidy compared to other countries. And not only do we have a low level of public subsidy, but we also have a real imbalance in our investment in the way that we prioritise spending on three- to five-year-olds, over the zero to two year old bracket, which is where childcare costs are really expensive for parents.

So, for a bit of international comparison, somewhere like Sweden spends two times more on zero- to two-year-olds than they do three- to five-year-olds. And this is similar in places like France and the Netherlands. But the UK spends six times more on three- to five-year-olds than they do zero- to two-year-olds. So that's quite a kind of simple driver behind why childcare costs are so expensive for families.

Mubin: And it actually could be even more expensive, couldn't it because childcare workers aren't paid very well are they?

Bel: No, they're not paid very well at all. And another kind of factor in that, is that a huge proportion of the workforce is female. And childcare workers are paid about £7.42 an hour, which is much lower than the national average. And that's kind of contributed to why there's a shrinking workforce and has created a lot of the issues that the market is facing at the moment.

Mubin: £7.42. Is that below minimum wage?

Bel: So there are lots people working towards their level two qualification, which is kind of GCSE equivalent, or on apprenticeships, and so the pay is generally quite low.

Mubin: Oh, and so that's why they can pay below minimum wage rates because they’re doing training at the same time. So once you've got your all your training, etc. You'll be being paid more than that?

Bel: Yep. Yeah.

Mubin: Hopefully,

Bel: Hopefully. Yeah, you’d hope so. No, there's a kind of comparison, I think it's the kind of average pay across the rest of the female workforce is around £11.37. So, there's a huge gap between what female childcare workers are paid and what their counterparts are paid and kind of combined with the absence of training opportunities more widely. Yeah, there's a real gap, I think, for some policies to target the workforce.

Mubin: So Abby, can we just go back a bit in terms of government support. Can you just repeat what that support is and what people get?

Abby: Absolutely. So there are seven different kinds of support that you might be able to access. There’s what's called a kind of universal offer, which is for any parent, which is the core 15 hours a week of funded free childcare. Above that, there are different kinds of eligibility. So if you're in work, you'll get more hours if your child is three to four years old. If you're on a lower income and your child is two years old, you'll get 15 hours. And if you are on a very, very low income, so if you're on Universal Credit, you'll get the most generous support, which is 85% of your childcare costs up to a certain level written off basically. And also to add even more complication. Everybody is eligible for something called tax free childcare, which is subsidised childcare, for any dependent child up to a certain level per year.

Mubin: And then you've got a whole issue about choice as well. So it's, it's sounding very complex.

Abby: Absolutely. it's completely different to the school system, the childcare market is a market. The system is seen much more like a kind of enterprise rather than a public good, which obviously, we see education in schools as. Is it a service that we pay for, in which case probably makes sense to have private provision in also because you want to fill gaps and availability, etc? Or actually, is it a way for us to level inequalities in the way that education is? In which case, we really need to be driving up provision and we probably need higher standards, we need more centralization. And that tends to be one of the frames that the debate kind of rages on.

Mubin: So Bel, childcare, in terms of costs is a little bit like housing, it's been a sort of perennial problem for quite a while. Why do you think this is risen up for political agenda?

Bel: I think, quite simply, it's that in the last five years, costs have risen by about 21%, across the UK, so particularly in the last year, combined with the cost-of-living crisis, and a real strain on people's finances, it's become much more apparent that it's a real issue for families. And at the time, when demand for affordable childcare has increased, the workforce are facing huge issues. So, it's been a perfect storm, really, of a market in a bit of crisis. huge pressure on families, finances, and yeah, demand - parents wanting to go back into work, but actually not being able to afford to because all of their income would go on providing childcare.

Mubin: And this is affecting not just those on low incomes, but across the income spectrum. Is that right?

Bel: Yeah. So this was one of the elements that came out of our polling that we found quite interesting is that common sense would tell you that those on lower incomes would be struggling with childcare costs more than those on higher incomes. And obviously, higher childcare costs will affect families on low incomes more acutely. But our polling actually found that families across the income spectrum identify the cost of childcare as a kind of stressor on their household. So around half of households with an annual income under 10,000 pounds, said they found it very difficult to cover the costs. And similarly, over a fifth of households earning over 45,000 pounds. So there was a kind of uniformity to it being a real pressure on households across the UK, which I think going back to our earlier point of it shooting to the top of the political agenda is that it is affecting parents of every income.

Mubin: Abby, why is quality important? What difference does that make in terms of outcomes for children, and particularly for those on lower incomes?

Abby: It's not hard to imagine that a poor quality of care in a setting that doesn't feel adequate or appropriate, is likely to have a negative impact on that child. And research backs that up, it shows that for children who are in lower quality provision for many hours a week, they actually see their development stunted and they see behavioural issues increase. So there's, there's a lot at stake here. You don't want children, particularly children from low income households who stand to benefit the most from formal childcare, to have to be in settings that are actively going to make their you know, future prospects worse. So is incredibly important.

Mubin: So let's come on to the Chancellor's big giveaway in recent budget, Bel, what actually was in there? And what will it mean?

Bel: The main changes in the budget were measures around the free entitlement.

At the moment, this is the 15 and 30 hours that parents of three- and four-year-olds can access. The changes in the budget now mean that as of - I think it's April 2024 - specifically, working parents of two year olds can now access 15 hours a week of childcare. And then in September 2024, so six months on, this 15 hours will be extended to working parents with children aged nine months and above so at the end of maternity leave, they'll be able to access that offer, that was one of the main changes.

And then the second element was the uplift to hourly funding rate. This will happen in stages and will hopefully help providers mean that they don't have to cross-subsidise and they're able to lower the prices that they charge parents. I think the key here is, it all depends on what those hourly funding rates are. Because if they aren't enough to fund the care that childcare providers offer, providers will still have to carry on cross subsidising and charging parents. But this kind of extension of the offer will mean that they have double the amount of children wanting childcare, and they won't be able to offer that. So, for me, I think the real key and the teller as to whether this policy will be a success is what that uplift will be.

But the other parts of the budget, which - this was kind of what I was most pleased with and will really affect low-income families - is that they are changing the way that the childcare element of Universal Credit is made available.

Parents are able to access and receive 85% of their childcare costs back. But the key issue is that before they had to pay that upfront, and they were then reimbursed by the Department for Work and Pensions. So, they had to have that money, let's say it's 800 pounds in their pocket ready to go to pay to the nursery, and they'd then be reimbursed, and often low-income families just don't have that chunk of money to pay to providers. And so the take up rate of this element of Universal Credit was really low. I think their most recent figures show that it was around 13%, which is incredibly low. So, the good thing about the budget is that this childcare element will now be paid upfront, And the amount that they'll be paid has increased too,

The fourth main change in the budget was around childminders, the number of which have really decreased in the last 10 years. But the government are now offering real incentives for childminders. So, if they choose to register with Ofsted, they'll receive 600 pounds. And if they choose to register with an agency, they'll receive 1200 pounds as an incentive to get into work. And we really kind of supported childminders in our report, because they can offer really high quality, flexible provision. And for lots of families who potentially work irregular hours or work shifts and need more flexible wraparound care, childminders are a really good solution to that and are often a much more local solution than the local kind of formal provider.

Mubin: So let's give a grade to this because I like to give grades. How would you rate this A to U?

Bel: In terms of how effective I think it will be?

Mubin: Yeah. Or you know how pleased you are with it, you know, how it the difference it's going to make to the lives of families?

Bel: Oh, gosh, okay, I would give it

Mubin: Sorry to put you on the spot, but

Bel: A to U, I think – that’s okay - I think I would give it

Mubin: And U means ‘unclassified’

Bel:  A ‘C’

Mubin: A ‘C’?

Bel: I'd give it a C. And I think it's moving in the right direction. But I think there is a lot more that could be done. And that would take it from a C to an A.

Mubin: It feels like if you're quite tough on the government, which I quite like from a conservative right Think Tank.

Bel: Yeah. Just got lots more, lots more ideas that they could introduce I think.

Mubin: Lots more ambition.

Bel: Yeah. A bit of ambition.

Mubin: What else could they have done to really boost that C grade to an A, what were you looking for?

Bel: So I think what I was really looking for, and what I think is arguably a bit odd about the budget is that in some ways they have done the harder bit without doing the easier bit.

So they've invested all this money - I think it's about 5 billion and that is a huge step. But for me, what I thought was missing was that, that focus on reforming and supporting providers so that there is somewhere for all the additional investment to go. And I think it's great that they've done that additional investment. But there are so many issues surrounding the workforce, and the kind of regulations around it, that I think that is where a lot of a lot of the next focus should go.

So, things like improving skill levels, increasing the amount of professional development that's available in the workforce, and streamlining some of the regulation which is unnecessary. So, one of our key recommendations, which I would really like to see in the future, is that in the rest of the teaching workforce, there's the early career framework, which was introduced in 2019. And if you're a secondary school teacher, the entitlement means that in the first two years of your teaching, you get amazing access to really high-quality support, structure training, and professional development, which is all linked to the best available evidence. And I have quite a few friends who are teachers who say that it's been so good for their development, just something and someone to ask questions to and know that you're on the right track.

Mubin: One thing that will help with retention, I'm sure, is better pay, is this going to deliver better pay?

Bel: Well, I think if there, if early years practitioners are more well trained and have opportunities for progression that would in turn lead to better pay. And I think it's also worth mentioning, a kind of broader point that is, in the UK, we don't really value early education, and why it's so important in the way that other countries do.

So, for example, somewhere like Australia or Canada. The Early Years practitioners are really highly valued, and Canada have invested 420 million in graduates coming out of university to enter the Early Years workforce. And they're really highly skilled, highly trained, and therefore are very well paid and it’s seen as a great career path. And we just don't have that same focus in the UK, not entirely sure why that is. I think if there was a real focus on explaining why early education is so important, and why the jobs that these people do are so important and should be really highly valued, I think that would skew the scales a bit and make it a much more attractive profession. And, in turn, the pay would increase with that. But yeah, I think that the focus should be on professional opportunities that are available. So somewhere like Australia, they require at least half of their workforce to be training for a higher qualification. So, there's clear progression, which leads to higher pay. And, yeah, it's much more ambitious than the kind of environment in the UK at the moment.

Mubin: So Abby, can I just ask about what's happening in other countries and which countries inspire you in terms of “oh, we should be a bit more like them”?

Abby: So there's, there's lots of really inspiring work being done. Internationally. I'll give the caveat that I think that whatever future system we implement, needs to be very rooted in the needs of and, and culture and history of the Four Nations. Because that's what's going to stick. But some things I'm really interested in excited by, some brilliant work being done in Ireland, where they are securing universal childcare. And it's a brilliant effort by civil society to coproduce ideas for that, and really bring people along.

I'm really interested in some of the democratic governance of the Norwegian system. So in Norway, each childcare provider has to basically kind of show their annual report to parents and workers as a kind of governance accountability process, which means that their work is really for the people who need them and the people who work there. So that's, that's really interesting, exciting. But to return to my caveat, I think the calls from parents have been, we want more childcare, we need cheaper childcare, and we need it now. So a lot of parents that I know, when the budget announcement came out, said, we're gonna have to wait until 2024 for this, but I've got kids now I need support right now. Which is really tricky, because actually to expand the system, as much as the chancellor has announced, we need tens of thousands more workers. We need a real reckoning of as we've talked about quality, and availability and accessibility and take up. And that's not going to happen tomorrow. And really, nor should it because there are some really big questions about the system that we need to answer before we go running into expanding provision. Saying that I think there's for me, I'm really interested in countries that have radically expanded availability without compromising quality and kind of take up I haven't yet seen an example of that.

Mubin: So can I just check something, then. The five odd billion the government is investing, this may not necessarily lead to higher pay, because it's about expanding for amount of provision - isn't there a danger that they may not be able to recruit the necessary workforce for that expansion?

Bel: There is a real danger that if the 5 billion for expanding free entitlement hours isn't accompanied with measures to address the issues in the workforce, that there will be a kind of collapse of the sector, and this money will have nowhere to go, basically. So I think there needs to be now a concerted effort to kind of redressing what's going on in the workforce and making sure that there are some solutions put in place so that the investment has somewhere to go.

Mubin: Has anyone done any calculation of how many extra workers are needed?

Bel: If they have, then I haven't seen it, but I think that would be quite an interesting bit of work to do.

Mubin: Yeah, I'm presuming it's running into the 1000s. For this expansion.

Bel: Yeah. It must be, it must be. And I think, potentially their idea for there wouldn't have to be lots more workers employed is that they change the staff child ratios. And well relax them. I have historically always been a bit sceptical of this. And I don't think it will have a positive impact.

Mubin: So what's the change there Bel? What will they change in terms of ratios?

Bel: So they’ve relaxed the staff to child ratios to what they are in Scotland at the moment. And we have argued against this on, I guess, three main points.

The first being that the workforce is quite under qualified, particularly compared to other countries

The second reason as to why I don't think relaxing the ratios will have an impact on how many children providers are able to take in, is that most providers are already at capacity in terms of their physical space because there are also space regulations about how many children you can look after in a space.

The third reason is that staff to child ratios and relaxing them as the government have done, that's proven very unpopular with parents like very few parents tour a nursery and say, ‘What this setting needs is much more children in it’. The number one thing that parents wanted was staff being trained to a high standard. So, I think it's worth noting that that's a step that the government has taken to, in theory, lower costs for parents, but as for the reasons I explained, I don't think that will actually happen. So there needs to be a bit of a focus on the workforce if these announcements are going to have an impact.

Mubin: And how much of a difference is this going to make to childcare costs? Is this going to really make a big difference?

Bel: Well, I think it could. And I say that for several reasons. I think it could have a real difference to the costs to parents, if it's paired with a really solid uplift in the hourly funding rates of providers. I think that will be the key. And I heard a stat the other day by the IFS who said that, one of the risks with the new announcement is that, with these new policies, the government actually now set the price for around 80% of preschool childcare hours. This is up from about 50%. So given that they're now setting the price for 80% of hours, it really relies on them funding that properly and if they don't, that is when providers will have to carry on cross subsidising and making up the lack of funding by charging parents more. If the government get the hourly funding rate right, and providers are getting what they need, they won't have to cross-subsidise and charge parents more. I also think they could have a big impact if paired with the workforce reforms that we've discussed. I think that was something I wanted to see a bit more of in the budget and could have a real impact. So I think if paired with the right things and improving the skills of qualifications of the sector, then I think it could have a big impact and reduce cost for parents.

Mubin: We've already talked about this rising up the political agenda. How big an issue do you think this is going to be in the general election because we had the Labour Shadow Minister make a speech recently as well. So clearly some competition in this field.

Abby: Labour's plans are much closer to the kind of Scandinavian view of the childcare system as more like school. So with the kind of universal entitlements, and a real focus on quality. But beyond that, we don't have, you know, a clear costed view of exactly what that looks like. And just as we've talked about in this conversation, I think parents and people have a kind of a feeling about quality, in that they have a personal preference of well, I'd rather have my child be looked after by my mom or by a neighbour or something. But I think parents, many parents are more concerned with the time of childcare being available, how far is it from that house? Much more practical kind of considerations.

Bel: I think there's a lot of competition in this field, which is a good thing. I think that will mean better ideas will come to the fore. If I were to put my money on it, I would say that it will be one of the key battlegrounds of the next election. And I know that Labour are gearing up for that. Bridget Phillips, in her speech for Onward said that Labour plan to move away from the kind of free hours model of providing childcare. So exactly the opposite to what the Chancellor has done in the most recent budget. Her speech was relatively light on real crunchy policy ideas, which I will imagine will come in the manifesto. But she seemed to have a real emphasis on families and providing for families, which I would imagine they'll do lots more on wraparound care, which I think is quite lacking at the moment. And they're looking at, I would imagine whole scale reform of the system by moving away from those free hours type model.

But I guess, on the flip side, we also know it is a key issue for the Conservatives, as evidenced by how much focus they're afforded it in the spring budget, and they're committing a huge amount of money to it. So, I would imagine there'll be more promises to come in the manifesto. Given how important we know it is to the public, like it's a cost an issue that families are affected by every day. And the current system just isn't working as well as it should. So, I think and I hope, that it will be a real policy focus as we run up to the next general election. And I'll be very intrigued to see what is in both of their manifestos on it.

Mubin: Thanks so much for joining us on the podcast. It's been really fascinating to get your views.

Abby: Great, thank you

Bel: No worries, thanks so much for having me

Mubin: If you enjoyed this episode, please like, share and subscribe on your preferred podcast platform, it really helps us spread the word. And don’t forget, series one is available now across all major podcast platforms and on our website. Until next time, thanks for listening.