Additional free childcare hours likely to have surprising impacts – warns a new PPIW study

Childcare policy is often viewed as a panacea to address social inequities and reduce poverty. Yet the PPIW report “Childcare Policy Options for Wales” sounds a note of caution that some policy measures may not have the expected impacts.

Government childcare policieschild-care1 have variously aimed to reduce gender inequality in the labour market, support parents to work and reduce poverty. It is no surprise therefore that the Welsh Government would wish to consider offering an additional 20 hours of free childcare to three and four year old pre-school children In Wales (currently eligible to 10 free hours) to help mothers move into work and to reduce poverty. Yet this study of the likely impacts of additional free childcare hours in Wales drew some surprising findings: it would neither significantly increase the number of mothers in work nor reduce poverty to any substantial degree. This seems counter-intuitive: reducing the cost of childcare – an often cited major obstacle to mothers’ working – should surely increase the proportion of mothers in work, while providing families with free childcare hours should raise their living standards? Digging deeper into the modelling behind the findings uncovered three key answers to this puzzle.

First, working families with lower incomes typically spend little on childcare: they make more use of free, informal care (that provided by relatives and friends) and spend less on childcare than more affluent families. Hence, longer free childcare hours would offer most benefit to better-off families and would do little to raise disposable incomes for those below the poverty line.

Second, poorer working families receive some reimbursement for their childcare costs through the Working Tax Credit and longer free hours would reduce these reimbursements almost one-for-one with any reduction in payments for childcare. Hence, some of the additional free hours would actually benefit the UK Government more than Welsh families.

Third, mothers’ work choices are surprisingly unresponsive to financial incentives: it takes large shifts in earnings net of childcare costs to make it worthwhile for many mothers to work (not least because of the value that can be placed on mothers caring for their children full-time). And, in the case of the free hours, the increase in net income would not be large. As highlighted above, many families do not spend much on childcare if working anyway; many would still need to pay for care for other children; and most non-working mothers earn low hourly wages (and low weekly earnings if they would choose part-time work as many mothers do).

The report’s findings make interesting reading for policy-makers in England where free hours will be extended for three and four year old pre-school children of working parents in 2017. Preparation for the English policy has also raised concerns about whether providers can offer a sufficient number of places with longer hours or with sufficient flexibility to meet the needs of working parents. Indeed, free “early education” places were originally intended to improve child development (a potential benefit not considered in the report) and were not designed to support parental work. Other measures – such as a more flexible childcare subsidy (a generous Tax Free Childcare type scheme) or a policy which directly targets money into the pockets of lower earners (such as the living wage) – could be more effective in encouraging mothers to work and boosting incomes for poorer working families.


 

About the author: Dr Gillian Paull is a Senior Associate at Frontier Economics where she undertakes research focused on the labour market, childcare and family-related policy. She recently served as a Specialist Advisor to the House of Lords Committee on Affordable Childcare.


 

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