£700m a year needed to cover mounting childcare bills, says think-tank

By Gabriella Jozwiak

| 07 March 2013

A think-tank has warned that the government will need to spend an extra £700m a year to offset rising childcare costs.

Childcare costs have risen by more than six per cent in one year. Image: Alex Deverill

The Social Market Foundation's warning follows yesterday's publication of the Daycare Trust and Family and Parenting Institute's Childcare Costs Survey 2013, which showed that childcare bills went up by an average of more than six per cent over the past year – more than double the rate of inflation.

Ryan Shorthouse, a researcher 
at the Social Market Foundation, said the figures highlight the disparity between rising costs for parents and declining state support.

He explained that in 2006, tax credits and childcare vouchers provided by the government accounted for about 80 per cent of childcare costs. Today, parents are paying out more to meet childcare fees, as the proportion of cost that the government supplements has slipped to about 70 per cent.

“Over the past decade, parents have seen childcare costs rise above inflation as government support through tax credits and vouchers has declined,” said Shorthouse.

“The Social Market Foundation has forecast that childcare will become more unaffordable in the years ahead, with a typical middle-income family set to pay £900 more a year from their own pocket in today’s prices in 2016 compared to in 2006.”

Shorthouse said that for low-income families to pay the same level of childcare fees as they did in 2006/07, the proportion covered by tax credits would have to rise to 82.4 per cent. This would cost the government about £400m each year from 2015/16.

The government would also need to extend the amount it spends on childcare vouchers by £300m a year.

The think-tank's calculations, based on previously published Daycare Trust figures, were backed by the Childcare Costs Survey's finding that a nursery place now costs 77 per cent more in real terms than it did in 2003.

The weekly cost for 25 hours of nursery care for a child under two years old is now £106.38, or £103.96 for older children.

Anand Shukla, chief executive of Daycare Trust and the Family and Parenting Institute, urged the government to include more support for parents in this month’s Budget.

Purnima Tanuku, chief executive of the National Day Nurseries Association, also called on the Chancellor to make reducing childcare costs a priority.

“We are recommending three measures to government – action on childcare vouchers, ensuring government funding for free nursery education reaches the frontline in nurseries and longer-term funding reform to improve efficiency and stop wastage,” she said.

Plans for the government to introduce a tax break for working families to help with the costs of childcare were rumored to be included January’s Midterm Review. But no such announcement was made.

However, Shorthouse warned that a scheme operated only for people in employment would disadvantage low-income and out-of-work parents.

“The tight public finances means significantly more public spending is unrealistic in the next few years," he said.

"In the absence of universally funded childcare for all, all parents should be offered government-backed loans to help them spread the intense costs of childcare over a number of years, making childcare much more affordable for working parents at no cost to the taxpayer,” he said.

Chancellor George Osborne will make his Budget statement on 21 March.

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