19 Feb 2015

Childcare costs rise 33 per cent in this parliament

The cost of a part-time nursery place for a child under two goes over £6,000 a year for the first time, according to research by the Family and Childcare Trust.

In its 14th annual childcare costs survey, the charity found that the average cost across Britain of part-time nursery care (25 hours a week) for under-twos was now £115.45 a week, a rise of 5.1 per cent in the last year alone.

The report found that while wages have remained largely static, “a family paying for this type of care now spends £1,533 more this year than they did in 2010”.

The reality is that for too many families it simply does not pay to work. Childcare costs survey 2015

The cost of a childminder was also up 4.3 per cent on the previous year, with part-time care now averaging £104.06 a week.

For many families… it is the biggest concern. Prime Minister David Cameron

The report noted that, for the first time in areas outside London, some of the lowest income parents will find that the maximum £175 available through working tax credits will not even cover part-time childcare costs and could leave them out of pocket by at least £52.50 a week.

The report concludes that “the reality is that for too many families it simply does not pay to work”.

Family and Childcare Trust graphic, 2015 report

Funding gap

The report does recognise that government spending on childcare has increased at a time when many other public services have been cut back.

But while welcoming this, and initiatives such as a tax-free voucher scheme, Stephen Dunmore, the chief executive of the Family and Childcare Trust (FCT), warned that “if childcare costs continue to rise at this pace, the benefits of new financial supports to parents will be quickly eroded within the next parliament”.

Working Tax Credit
At present working parents on low incomes can receive up to 70 per cent of their childcare costs through tax credits, up to a maximum of £175 per week. There is a limit of £300 per week for two or more children. These levels were set in 2005 and have not been updated since then.
If anyone in the household earns over £15,910 per year before tax & national insurance, the benefit starts to taper off, so only those on the lowest incomes receive the full amount of credit.
Only 8 per cent of parents get help with childcare costs via tax credits.

Some 540,000 UK parents not in receipt of tax credit currently get help with childcare costs through employer-supported childcare schemes, usually through vouchers. However only 5 per cent of employers offer them, and not all childcare providers accept them.
This scheme is due to be replaced in 2015 by a tax-free voucher adminstered online. For each £8 a parent pays in, the government will add an additional £2, up to a maximum of £2,000 per year. A parent would have to spend £8,000 to receive the full £2,000 top-up.

Prime Minister David Cameron acknowledged that for many families childcare is “the biggest concern”, but added: “The government already does a lot to help: we provide 15 hours of funded childcare for three-year-olds and four-year-olds. That’s been extended and expanded under this government, and of course that’s been expanded through the tax credit system.”

At the moment all three- and four-year-olds get 15 hours of early education a week over 38 weeks a year. In addition, the most disadvantaged 40 per cent of two-year-olds have more recently become eligible – some 260,000 children. However at the moment take-up rates for two-year-olds is around only 60 per cent, whereas almost all three- and four-year-olds take up their places.

David Cameron with nursery school children (Reuters)

Speaking about plans for the new tax relief on childcare, Mr Cameron said: “I think for many families on middle earnings it will make a real difference because they’ll be able to make that choice about whether they want to work or want to work more hours to suits their needs.”

Costs shortfall

Neil Leitch, chief executive of the Pre-school Learning Alliance said it was unsurprising that costs are still rising.

“For many years now, government funding for the free entitlement schemes for two, three and four-year-olds has failed to meet the cost of the providing these places, leaving childcare providers to make up the shortfall,” he said.

“As a result, many providers have been forced to increase the cost of paid-for hours just to stay afloat.”

He said that for every four children accessing a free entitlement, providers are effectively having to fund a fifth child themselves, and he demanded that more research be done into the true cost of delivering “funded” places.

Gaps in provision

The FCT report also found that, despite a legal obligation for local authorities to make sure there is sufficient childcare available for working parents, the number of councils in England achieving this had fallen from 54 per cent last year to 43 per cent now.

Ellen Broome, director of programmes and external affairs at the FCT, told Channel 4 News that lack of provision is a major problem, especially in disadvantaged areas where more parents do not pay for childcare beyond the free provision.

Ms Broome warned that, without more places, even higher prices were in prospect: “An additional 400,000 women in the workforce may well have driven up demand for childcare provision, and without a corresponding increase in childcare supply this is likely to drive price inflation for parents.”

LibDem leader Nick Clegg on Thursday outlined a new proposal to bring in a universal entitlement to free childcare for all two-year-olds, and a 15 hours a week of free early education for children from nine months to two years old.

Speaking at a childcare conference Mr Clegg said: “We recognise that pressure on working parents to budget for their childcare costs doesn’t just start when their child is two years old, and their entitlement to funded hours kicks in, but when their parental leave ends.”