Changes to free childcare entitlements explained

From September 2017 the government will provide 30 hours of free childcare for working parents with children aged 3 to 4 years old. The policy aims to increase maternal employment it could also potentially improve educational outcomes. However, a recent investigation by Centre Forum found that unfortunately, it might not do either since a myriad of issues surrounding eligibility, quality of provision and funding are likely to result in small changes to maternal employment, low quality provision, high competition for places and an increased disadvantage to those children who are not eligible.

Who will be eligible?

All children will still be eligible for the core 15 hours of free childcare. The additional 15 hours will be available to families in which one parent (in a single parent family) or both parents (in a two parent family) earn at least £115.20 per week (the equivalent of 16 hours on the national living wage), but do not have a yearly household income of more than £100,000. The benefit will be available to two parent families in which one parent meets the income eligibility criteria and the other parent is a carer, but will not be extended to single parents who are carers. If one or both parents are students, their child will not be eligible for the additional 15 hours.

The government is also in the process of changing ‘demand-side funding’ childcare subsidies which provide direct financial support to parents with childcare costs. Working tax credit will become universal tax credit, covering up to 85% of childcare costs for employed parents earning less than £31,000. As part of this change employer childcare vouchers will be replaced by a tax relief system in which the government will contribute to 20% of childcare costs for families earning at least £115.20 per parent, but less than £100,000 annually.

The effect on maternal employment

Crucially, the aim of this policy is to increase maternal employment, however, experts question whether it will do so for three reasons.

1. Research suggests that this type of incentive only works when maternal employment is below average, which is not the case in the UK, and when a mother’s youngest child is eligible.

1. Furthermore, the policy will carry considerable ‘deadweight’ where currently working mothers will shift their childcare from paid provision to the free entitlement without changing working patterns.

2. The policy may also incentivise some women to work less, as reduced childcare cost means they will be able to maintain the same disposable income level while earning less.

Where it is successful, this policy will still be an expensive method of moving relatively few parents into work.

The effect on educational outcomes

Although it is not the key aim of the policy, we must of course consider the impact on children’s educational attainment. High quality early years provision is associated with better language development, better self-regulation and increased attainment. The greatest effects are seen amongst disadvantaged children but the most disadvantaged will not be eligible for this increased provision (Sylva et al., 2014).

Furthermore, medium quality and low quality settings do not have the same positive impact as high quality settings (Sylva et al., 2014). In 2000 when the universal 15 hour system was implemented most expansion took place in low quality settings, if this pattern is repeated, the additional 15 hours provision risks having no positive effect on child outcomes.

Therefore, not only does this policy exclude the most disadvantaged children, if pressures on services result in a drop in quality there will little or no benefit for eligible children.

The major issues with the policy

The main flaws in the policy relate to capacity and funding.

Firstly, there is already a shortage of early years places and this expansion will put greater strain on capacity. In early 2016, 59 local authorities reported a shortage of places for 3 and 4 year olds. This policy will increase competition for places and in order to increase efficiency, settings may give priority to children attending for 30 hours since it is more efficient to accommodate one child for 30 hours compared to two children for 15 hours each. Children who are only eligible for the core 15 hours may find it more difficult to secure a nursery place and consequently may have to enter a low quality setting, travel further or miss out on pre-school education altogether.

The government’s estimate that 45,000 additional 15 hour places are needed is deemed too low as it is based on current employment and uptake rates, essentially assuming the policy will have no impact on either. This estimation does not allow for any increase in maternal employment either, despite this being a key aim of the policy.

The government has pledged £50 million to fund the increases in childcare subsidies. Experts argue that this won’t be enough. It certainly will not be enough to ensure quality provision. Furthermore, the allocation is based on current rates of uptake in which the majority of parents do not access their maximum entitlement due to the complexity of the system and the need for high salary contributions. However, due to the publicity and promotion surrounding these changes, uptake may increase, again, placing unexpected pressures on the system.

Policy makers must consider the potential costs and delivery options in more detail, taking into account possible changes to current employment and uptake, and rethink how funding can be allocated efficiently to build capacity in high quality settings.