A recent report by the children’s charity Coram showed that the average annual cost of a full-time nursery place in Great Britain for children under two is now just under £15,000. Average costs have risen by 5.9% in the past year. Unaffordable childcare has a detrimental impact on parental employment outcomes with single parents, mothers and those unable to rely on informal care arrangements the worst affected.

Providers are also facing enormous financial pressures that have had knock-on effects on workforce pay and progression, and availability of childcare places. In its annual Childcare Survey, Coram surveyed local authorities to gauge what financial pressures childcare providers in their areas faced. 57% of local authorities surveyed cited the rising cost of energy while 56% mentioned inadequate government funding as factors behind the financial crunch.

Reaching a more sustainable funding settlement for childcare will close the gender pay gap and grow the economy as well. A recent report published by Save the Children and IPPR estimated that a universal childcare offer would boost GDP by £13 billion per year, close the gender pay gap and generate £8 billion per year for the Treasury.

Childcare jobs are insecure and underpaid

Government funding has failed to keep up with the cost of providing funded places which has led to some providers closing. In 2021-22, an increasing number of local authorities reported there is inadequate provision to meet the demand for early years and primary school children in their areas.

These funding shortfalls mean providers are cutting costs elsewhere, which has affected their ability to hire and retain qualified workers. Work in early years is insecure, with many working part-time and earning the minimum wage, despite the responsibilities they hold. Scope for in-work training and progression is limited.

A new sustainable funding settlement for childcare that fully meets delivery costs and takes account of the need to invest in training and development is essential. This must be underpinned by a comprehensive workforce strategy focussed on job security, learning and development and progression.

The new Local Skill Improvement Plans provide an opportunity to solve these workforce challenges. LSIP providers should work alongside local authorities to gauge whether there needs to be a specific focus on the childcare workforce based on the extent of workforce pressures in the local area.

The TUC has called for a sectoral minimum wage of £15 to increase the attractiveness of the sector, but in addition to higher pay, onboarding and induction training opportunities must be expanded to make workers feel more valued and prepared to take on the unique skills required of childcare workers. Finally, progression pathways and clear pay differentials must be set out to incentivise workers to stay in the sector.

There’s a risk that unaffordable childcare squeezes women out of the labour market

Parents are finding it increasingly difficult to meet childcare costs and, at a time when the UK is already facing worker and skills shortages, childcare has become an important political issue for the Government.

Support to meet costs is complex, and parents face barriers to getting help they need. For example, childcare payments in Universal Credit only cover 80% of costs and are paid in arrears. Parents must cover their childcare costs upfront which can trap them into a cycle of debt. This disincentivises them from claiming the support they are entitled to. Recent data indicates that only 13% of eligible parents take up childcare support within Universal Credit.

Furthermore, parents also often must contend with gaps in childcare provision. There is no publicly funded early years provision for children aged one to two, creating a gap between parental leave ending, and subsidised provision beginning for some children aged two. This means that parents face steep upfront costs when their parental leave ends. This may disincentivise women in particular from returning to full time work as mothers remain more likely to take on childcare than fathers. In turn this is likely to negatively impact their employment and earnings prospects in the long run.

Women are already 1.8 times more likely to be in severely insecure work than men, but our previous research found that working mothers experience a motherhood penalty. Mothers of young children are 6 percentage points more likely to experience severely insecure work than women without young children (30.4% compared with 24.7%).

Childcare costs and inflexible work

Work Foundation research has found that exorbitant childcare costs prevent people on Universal Credit from taking advantage of training schemes. Parents often have had to forego training opportunities until their children were old enough to go to school or qualify for increased free childcare hours.

The Department for Education should increase funding for childcare by extending the 30-hour entitlement to all three–four-year-olds and introduce a 15-hour entitlement for those under two, right after parental leave ends. To reduce the burden on parents on Universal Credit, the Department of Work and Pensions should cover childcare costs in full and make payments upfront.

The Spring Budget presents an opportunity for the Chancellor to support working parents and start to reform the childcare sector to make childcare more affordable for all parents in the UK and support low-paid workers within the sector.

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