Observations

What can we learn from Labour's shift in childcare policy?

Date: 30 September 2009
Authors:
Publisher: IFS

Gordon Brown's speech to the Labour party conference gave more detail about an existing ambition of this government to provide free early education and childcare places for 2 year old children in England.

The Prime Minister has now promised that this would be provided to young children in "modest and middle income" families by 2015, and would be paid for by "reforming tax relief" on childcare. This is widely reported as meaning that the Government intends to scrap the existing tax break on employer-provided childcare vouchers, something which it introduced in April 2005. If it is scrapped outright, the losers will be relatively well-off families in work and using formal childcare: low- to middle-income working families using childcare will continue to be able to get help with childcare costs from the tax credit system.

However, there is, we presume, more to this reform than just redistributing income by removing state support for well-off families with children and increasing it for the poorest, because the two policies also have different objectives.

The tax break on employer-provided childcare vouchers is mainly intended to reduce the cost of childcare for working parents, and so encourage them to work. The vouchers are flexible, in that they can be used to buy any form of childcare provided it is registered with Ofsted or otherwise approved, including day nurseries, playgroups, out-of-school clubs, childminders or nannies.

On the other hand, if the free places for two year olds are like the existing entitlement for three and four year-olds in England, then they will be limited to centre-based care, such as state-run Children's Centres, and private or voluntary sector nurseries or playgroups. These free places will, presumably, make it a little easier for the parents of these two year-olds to work if they want, but the Government may also be hoping that this policy might improve developmental outcomes for the children from low-income families. Recent work based on the Millenium Cohort Study, and currently the subject of further research at the IFS and the CMPO, has shown that children aged three from families in poverty have lower cognitive skills, lower achievement scores and more behavioural problems than those that do not, and it is argued by some that education and child care for such children can help to reduce these differences, especially if it is of sufficiently high quality.