The Budget - Childcare Reforms Create A New Branch Of The Welfare State - But Also Huge Risks To The Market

17th March 2023

The Institute for Fiscal Studies has published a response to the budget changes. This applies to England only and the Scottish Government must decide what to do with the money flowing from the Barnet Consequential amounts.

The problem is that there may not be enough money for either England or the other three countries. There will need to be some building work before the new place can be made available and also of course get more staff - already a a difficulty in some areas.

Ok take look -
Childcare reforms create a new branch of the welfare state - but also huge risks to the market.

Expanding the ‘free entitlement' to a funded childcare place to children aged 2 and under in working families will save the average family with a toddler using formal childcare over £80 a week. Those using full-time formal childcare, or with multiple young children, or living in London and the Southeast, are set to benefit considerably more. This sounds like great news for parents - but there are serious risks.

Based on existing patterns of childcare use, this reform will leave Whitehall in charge of the price of 80% of all pre-school childcare in England (up from just under 50% now). That raises the stakes for getting the funding rate right: too low, and providers could opt out of delivering the new entitlement or even exit the market entirely. That could leave today's promises a theoretical entitlement only, and risks making it even harder for parents to find a childcare place.

More financial pressure on providers also risks the quality of care on offer. A large expansion of free entitlements alongside under-funding of providers would certainly be to prioritise the parental employment purpose of childcare over the child development purpose.

Extra funding for existing entitlements, worth £288 million in 2024-25, is about a 7.5% uplift on the current budget - broadly in line with the expected increase in providers' costs over the next two years. But since 2017-18 (when real-terms core funding per hour peaked), the sector has already absorbed a 13% real cut when adjusted for the cost inflation faced by childcare providers.

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.

Christine Farquharson, Senior Research Economist at IFS said, "For such a huge reform to the early years system in England, today's Budget gave us remarkably little detail about the one thing that will really matter: the funding rate that providers will receive. Even under current patterns of childcare use, expanding the 30-hour offer to almost all pre-schoolers in working families will put Whitehall in charge of the price of 80% of childcare hours delivered in England. That raises the stakes for getting the funding rate right, with the potential for huge damage to the quality and availability of childcare if the government gets it wrong."

Read the full article HERE