How to solve the childcare crisis

As set out in the REC's report, Overcoming Shortages: Creating a Sustainable Labour Market, one of the main ways to address labour shortages in the UK is to improve access to work. This includes improving access to childcare to allow those with caring responsibilities to work without fear over the quality or cost of childcare.

Under the current childcare system an hour of childcare at a nursery costs more to many parents or carers than they would earn by working for this time. This is particularly the case for individuals in lower paid roles who have to make a choice between working or choosing to stay and care for their children because they can’t afford the childcare. For too many people, particularly women, this means that it can be financially detrimental to go to work. We are also seeing a rise in economic inactivity for the over 50s. This generation are more likely to have caring responsibilities for both their grandchildren and elderly parents than previous generations. The need for them to provide care means they withdraw too early from the labour market. Improving access to childcare would help to alleviate some of the pressure on this group to retire early.  

The issues with childcare costs are only half the issue. Even for families who can afford the high price of childcare, there is a problem with access to nurseries or other childcare due to the low number of providers available in some areas. Running a nursery is expensive, and according to a 2018 Freedom of Information request by the Early Years Alliance, the government had predicted that by 2020, it would cost £2bn to fully fund the sector. This would have resulted in a three and four-year-old funding rate to local authorities of £7.49 per hour. But in reality, just £300mn of funding was provided meaning the funding rate to local authorities in 2020 was £4.89 per hour on average for this age group. Inflation and the cost-of-living crisis have likely increased the level of funding needed further. 

There are things that can be done to address these issues. The REC has written to Kelly Tolhurst MP, Minister for Schools and Childhood, to set out some of the actions the government needs to take to address these issues. These include a full review into the current childcare system to ensure a long-term sustainable childcare market is available. In our letter, we also highlighted short-term solution that could help to provide immediate support to families such as increasing funding to providers under the current system and increasing the existing tax-free childcare allowance from £2 for every £8 paid in by the user to £4, doubling the additional funding families receive.

Practical changes like this will alleviate pressure on working parents and childcare providers, addressing some of the issues we're seeing around labour shortages and economic inactivity while also ensuring we've got a sustainable childcare system, which genuinely helps people to keep working, adding to UK growth and productivity.  The government needs to take swift and decisive action on these to make a difference now.