Where next for UK childcare?

Women’s earnings have never been more important to families or the economy. As men’s earnings have stagnated over the last decade, women’s have continued to rise slowly, filling in gaps in household finances alongside tax credits.

Surprisingly, mothers have been closing the pay gap on fathers faster than women in general, leaving children in single male breadwinner families most vulnerable to poverty. Childcare is critical to enabling two parents to work and balance their family commitments. This is especially the case as family ties loosen and parents are less able to rely on relatives to help out.

According to the OECD, the UK has some of the most expensive childcare in the developed world but the picture is more complex than the bare facts suggest. Our affordability problems are a reflection of the shape of our labour market and the way government support for childcare is targeted.

The UK has a larger low wage labour market than many of its international competitors. Nearly 21 per cent of employees in the UK are in low wage work compared to an OECD average of 16%; only the US has a higher proportion of low wage workers than we do. Furthermore, many low wage jobs are in sectors of the economy such as social care and retail that are expected to grow in the coming years and are dominated by women.

Despite the fact that a substantial amount of government resources are targeted at supporting the childcare costs of low income households, childcare inevitably eats up a large proportion on earnings for those on low wages. Coupled with the withdrawal of tax credits as families earn more, this means that parents have to work many additional hours to increase their income by only a few hundred pounds a year.

For families on middle incomes who fall just outside the tax credit system, the problem is different but equally difficult. They earn more but get far less support from government and, therefore, a greater chunk of their income goes towards childcare. For example, a low income family on £24,000 would spend 10 per cent of its income on full-time childcare for two children under five after all government childcare support is taken into consideration. A family on median income, by contrast, would spend 23 per cent of its income on the same amount of childcare, reflecting far less generous support from government. It is only those on high incomes for whom the equation comfortably stacks up, because their earnings are high enough to justify paying large amounts for childcare.

The low wage labour market presents a further set of challenges to parents who need childcare. Many low wage jobs require parents to work outside of core hours but little formal childcare is available outside of these hours. Only one in five working families in Britain has at least one parent who works all their hours between 9am and 5pm and less than 1 per cent of families now have both parents who work these hours. Furthermore, the growing insecurity of many low wage jobs makes it difficult to keep a childcare place. Parents on zero or short hours contracts have little certainty about their working hours from week-to-week. However, childcare providers want parents to stick to a regular schedule which means paying for childcare that they do not need.

While our childcare problems are in part a reflection of our labour market, there is strong evidence that a lack of affordable childcare holds back women as well as the economy. There is no longer a gender pay gap for those under 30 – but a significant gap remains for women over 30 who are of prime child bearing age.

While the UK ranks 15th in the OECD for overall female employment, it falls further behind for women aged 35 to 39 and has the third highest proportion of women working part-time in the OECD. That said, when asked, most women with young children want to work part-time rather than emulating the full-time dual earning model of the Scandinavians. Ensuring that women are able to work part-time when their children are young is a sound investment in the future because it leaves mothers better placed to progress when their children reach school age.

The current offer of 15 free hours of childcare for three and four year olds is not adequate to make even part-time work possible. Extending this to 25 hours for those in work would make a real difference, especially to those on low to middle incomes who would struggle to cover additional childcare costs.

But investing in childcare alone is not enough. We also need to make a stronger case for high quality, part-time jobs to ensure that mothers returning to work can earn a decent salary by working part-time. For many women returning to work after having children, the only option to secure a part-time role is to take a cut in responsibility and salary.

Employers may not be willing to invest directly in childcare, especially at the lower end of the labour market. But by offering greater flexibility for parents to allow them to combine higher quality, better paid employment with family responsibility, employers have a big contribution to make and government should challenge them to rise to the task.