Marsha Wood is Research Assistant at the IPR. This blog post develops on the work she contributed to the Centre for London project Open City: London After Brexit.
London has a big problem with maternal employment. Women with dependent children living in London are 10% less likely to be in employment than women in the rest of the UK (61.4% in London compared to 72.1% in the rest of the UK). Rates for men with dependent children on the other hand are very similar in London and the rest of the UK[1]. There are many factors affecting maternal employment rates nationally such as parental attitudes, family-friendly work opportunities, work incentives in the social security system and education opportunities. In addition to these factors, a lack of affordable childcare is a significant barrier to maternal employment, and this problem is particularly acute in London. The average cost of a childcare place in London is 36% above the cost in the rest of the UK[2] and one third of local authorities in London do not have enough childcare for working parents[3].
Considering the acute problem of maternal employment in London, there is an argument for a London-specific solution addressing childcare affordability and accessibility. Devolving more powers over early-years funding to the Mayor could provide the answer. This blog sets out the scale of the problem and the possible risks of a devolution-based solution.
Why does it matter that maternal employment is low in London?
London has extremely high poverty rates. 27% of Londoners live in poverty after housing costs are taken into account, compared with 20% in the rest of England[4]. 700,000 children in London are living below the poverty line: 37% of all children in the capital[5] compared to 28% of children in the UK as a whole[6]. One of the main causes of these high poverty rates is the low maternal employment rate, yet working does not necessarily lift mothers and their children out of poverty where other costs such as childcare outweigh the financial gain from entering employment. A recent study by the IPPR[7] shows that if the maternal employment rate in London rose to meet the current UK average, 80,000 more mothers would be in work. Their research shows that this would result in a net gain of £90 million to the Exchequer, due to net savings from increased tax receipts and reduced benefit spending. Furthermore, they claim 2,200 households in the capital would be lifted out of poverty.
A more recent concern which has focussed attention on the need to address the low maternal employment rate in London is Brexit. Many more jobs in London than elsewhere in the UK are currently undertaken by EU workers. There are concerns about the vacancies that will be left as we leave the EU. Making it more attractive for mothers to enter the workforce by reducing their childcare costs could be key to filling the posts left by EU workers. Of course, there are many questions around Brexit and how freedom of movement will be affected in the short and long term. Even so, we can already see that uncertainty is having an impact. According to a report by the Chartered Institute of Personnel and Development (2017)[8] that cites ONS data, the number of non-UK nationals from the EU working in the UK fell in the three months to December 2016 from 2.26 million to 2.24 million.
Why is childcare so expensive and less accessible in London?
The particularly high cost of childcare and difficulties around provision and access are influenced by many factors specific to London. Providers have to charge clients more because of their own higher costs linked to high property prices and rents, and the higher wages needed to meet the higher living costs associated with living in the capital. London workers often face long commutes which mean that the hours offered by providers are not enough to allow them to complete a full working day. Parents in London are also less likely to have access to informal childcare than families elsewhere in the UK making it more difficult for them to mix up paid-for and free childcare to reduce their overall costs. For example, 12% of families in London were found to rely on informal childcare, mostly provided by grandparents, compared to 46% in the North East[9].
What about the free hours of childcare offered by the Government – doesn’t this help?
The 15 hours of free childcare per week offered to all parents of 3- and 4-year-olds has had positive national uptake and has been successful in its aim of increasing the numbers of children receiving early-years education[10]. It has also provided a welcome reduction in childcare costs to parents already in work. However, this policy has had limited effects on increasing maternal employment rates. Research by the Institute for Fiscal Studies (2014) has found that the roll-out of free childcare for 3- and 4-year-olds led to a modest rise in the national employment rate of 3 percentage points for mothers whose youngest child is 3 years old (from 53% to 56%), with just half of mothers with a youngest child aged 3 to 4 in work[11]. More recent findings from a study by Brewer et al (2016)[12] show that the additional 15 hours which is to be offered to working parents from September 2017 is likely to be only a minor incentive to enter employment for mothers, and instead will act as a further subsidy for parents already in work. This is not to discredit this policy, which increases participation in early-years education and provides a very welcome reduction in childcare costs for working parents. It may also be that the extra free hours play an important part in incentivising mothers to stay in employment, especially as their families grow and childcare costs expand.
Yet, with regard to incentivising maternal employment entry, especially for lower paid jobs, the offer would need to be expanded to be a fully free childcare offer. At present the offer is only available for 38 weeks of the year and the hours offered do not cover the full working day/week, so parents have to find funds to pay for expensive childcare outside of this time. This is more of a problem for parents in London who need their children to be cared for long enough to cover the considerable extra time they need to spend commuting. A further issue is that the rates the Government offers local authorities do not cover the costs for providers, which are especially high in London, and therefore nurseries are having to charge parents top-up fees. It is only higher income earners that can afford these extra costs and the costs to pay for their child to stay in nursery during the holidays. Uptake of the 15 hours of free childcare for 3- and 4-year-olds is actually lower in London at 86%, compared to 95% in England as a whole – which may reflect the limited local places offered to parents who cannot afford to top up through their income. A further problem is that many nurseries report that they will not be able to offer the additional 15 hours to working parents because it means parents will be purchasing fewer fully-costed hours, which the nursery needs to make up the shortfall in the funding allocations for the so-called ‘free’ hours from Government.
What about the 2-year-old free childcare offer for disadvantaged families?
Across London just 57% of eligible 2-year-olds accessed free childcare in 2015/16, compared to an average of 68% across England[13]. There are several factors that affect uptake of the 2-year-old offer nationally, and more specifically in London. Firstly, as the 2-year-old offer is only available to parents and children who meet certain criteria (related to low income and for children in care or who have been adopted) it is harder for providers to offer free places because eligible parents are often not in work and therefore less likely to be able to afford additional hours of care. Providers also struggle because minimum staff-child ratios are tighter for 2-year-olds, making the 2-year-old places more expensive for providers. Whilst the funding rate for 2-year-olds is more generous than the 3- to 4-year-old offer, it is not enough to cover provider costs[14], which are particularly high in London.
What about support through tax credits or Universal Credit for disadvantaged families?
HMRC data shows that 9% fewer families with dependent children in London received support through the childcare element of working tax credit than elsewhere in the UK[15]. There are a number of factors affecting this low uptake. Firstly, there are low financial gains to be made for second earners moving into low-income work in the UK generally, but these are particularly apparent in London. Whilst a family with a low income could expect to receive support with childcare costs through working tax or Universal Credit, the combination of low work allowances, a steep taper rate and high childcare prices in London mean that real work incentives for second earners with childcare costs in London are low[16]. A mother in a couple family with two pre-school children in London could expect to add just £90 each month to the family’s income by moving into full-time work at the National Minimum Wage compared to a comparative figure of £200 for those outside the capital[17].
A London-specific solution?
In the context of London’s high poverty rate, concerns over filling the employment gap that may be left as we exit the EU, and increasing recognition of the need to devolve more powers to local areas to tackle local problems, the time could be right to look towards a devolution-based solution to tackling London’s childcare crisis. Of course this should not let central Government off the hook. There are many ways to improve access to childcare, including through reforms to the tax and benefits system, which remain the preserve of central Government. However, there are also things which could be done by the Mayor to better shape childcare and early-years education to meet the capital’s childcare needs if some or all of central funding for childcare was devolved.
Proposals have been put forward[18] [19] which argue that if plans go through to allow local authorities to retain 100% of business rates, which have been estimated to raise £4 billion collectively across London, then some of this money could be used by the Mayor to fund an improved childcare system for the capital. These business rate funds would replace current central funds – such as the DfE early-years allocation (amounting to around £670 million for London[20]) and the Revenue Support Grant that currently funds local authorities – and would allow the Mayor more control to develop a childcare system that addresses current childcare inequalities in London. It is argued that the money should go directly to providers to ensure that there are enough high quality childcare places for those eligible, rather than the complicated current system involving income top-ups, grants and in-kind support. Other challenges could also be explored, such as how to make greater use of unused public spaces for childcare facilities, how to provide training for childminders to ensure a greater supply of options for those working flexible hours, and how to help start-ups pay the upfront costs of childcare and manage the initial outlay required.
Would London be the first to give a Mayor these kinds of powers?
Mayors do have more power over early years in other countries outside of the UK and this is leading to radical reforms to childcare in those places. New York’s Mayor, Bill de Blasio, has announced an ambitious plan to provide universal, free, full-day, high-quality early-childhood education for every 3-year-old regardless of family income. The programme – called 3-K for All – would be rolled out gradually, and follows previous initiatives providing universal free childcare for all 4-year-olds (Pre-K). Some are concerned about the provision of enough teachers for the new offer, but it seems that Mayor de Blasio’s determination is creating pressure for change in the right direction. Thought would have to be given to whether this kind of universal offer is the best solution to boosting maternal employment in London.
What are the potential risks or limitations of this approach?
One risk of devolving responsibility for the provision of childcare is the potential for a postcode lottery in relation to the childcare offer. We see this happening in other policy areas where funding decisions are devolved, such as healthcare. However, it is important to remember that London’s specific circumstances mean that it is currently disadvantaged compared to other areas in relation to access to affordable childcare. National policy currently does not work fairly for London, and therefore it could be argued that a separate solution is needed for London. Of course, there are other areas where childcare access and affordability are also problematic. A London-based solution should not distract from a focus on issues elsewhere, but should kick-start arguments in other areas for devolved responsibilities and control over funds for childcare to solve locally specific problems. For example, provision in more rural areas may require different kinds of innovations to urban areas, such as improved transport links to providers. The election of new metro mayors could provide impetus for change in other areas.
A further risk may be presented by the labour market itself, especially in the context of less EU migrant labour. We don’t yet know what kind of a Brexit we are facing, but it seems that EU workers in higher skilled jobs are more likely to receive greater protection, leaving only the lower skilled jobs vacant and in need of being filled. Whilst EU workers may have more incentive to take up lower skilled/lower paid work because the money earned is worth more in their home country, this incentive may be lower for mothers in London – especially considering the unsociable hours involved in many of these kinds of low skilled jobs, and the limited training and progression opportunities offered by employers. For example, ONS data[21] shows that 32% of those working in accommodation and food services in London were born in the European Economic Area (EEA) compared to only 12% who were born in the UK. When considering what the right childcare offer should be for London, the Mayor might want to think about how it can support more flexible childcare arrangements such as being able to pay family or friends for childcare.
One argument for increased spend on childcare is that costs will be offset in the longer run by incentivising more people to work, creating new jobs and increasing tax revenue. However, whilst a well-designed childcare system can indeed bring more mothers into work, it cannot solve all problems. As argued by Naumann (2015)[22]: As long as new jobs in the labour market are primarily of a low-pay, part-time nature, economic returns for public spending on childcare will remain meagre. When considering the kind of childcare offer London needs, the Mayor should factor in how other issues that affect maternal employment can be addressed; arguing for more power over skills funding to provide high quality apprenticeships for mothers returning to work, for example, would be a positive step. A living wage for Londoners could improve incentives for entering employment. Affordable housing is also key, as – even if childcare reduces costs to encourage returns to work – housing costs may still mean that it does not pay to enter employment.
Furthermore, a reduction in childcare costs can only go so far in encouraging employment entry and re-entry without the additional emotional support that is needed to aid moves into employment. There is a need to recognise that some mothers may have lost confidence in their ability to engage with the labour market, and young mothers may not have had any labour market experience prior to having their children. With more control over funds, the Mayor could increase resources for children’s centres to support those who may have become distanced from the labour market and may have experienced a loss of confidence and self-esteem in their working abilities to engage or re-engage with work options.
What is needed is a decent childcare offer that encourages mothers to take an active choice to enter into positive employment with prospects, and the support necessary for those most distanced from the labour market to build confidence in their abilities in the knowledge that their children will be looked after in high-quality care. Devolving more powers to London could offer the opportunity to begin a long-overdue process of wider change in this area.
This blog post develops on work that Marsha contributed to the Centre for London project Open City: London After Brexit.
References
[1] ONS, Employment in London and UK by parental status, sex, ethnicity, 2012 to 2015, User Requested Data Ref 005893, 8 July 2016 https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/adhocs/005893employmentinlondonandukbyparentalstatussexethnicity2012to2015
[2] Rutter, J. (2016) 2016 Childcare survey. London. Family and Childcare Trust.
[3] Lugton, D. and Rutter, J. (2014) Out of school, out of mind? London: Family and Childcare Trust.
[4] Trust for London (2015) London’s Poverty Profile 2015. London. New Policy Institute and Trust for London.
[5] Child Poverty Action Group. Child Poverty in London Key Facts. http://www.cpag.org.uk/campaigns/child-poverty-london/keyfacts
[6] Child Poverty Action Group. Child Poverty Facts and Figures. http://www.cpag.org.uk/child-poverty-facts-and-figures
[7] https://www.ippr.org/files/publications/pdf/future-of-childcare-in-London_summary_Apr2017.pdf
[8] Chartered Institute of Personnel and Development (2017) Labour Market Outlook. Views from Employers. file:///C:/Users/mjew20/Downloads/labour-market-outlook_2017-spring_tcm18-22353.pdf
[9] Huskinson, T., Kostadintcheva, K., Greevy, H., Salmon, C., Dobie, S., Medien, K. with Gilby, N., Littlewood, M., and D’Souza, J. (2016) Childcare and early years survey of parents 2014-2015.
[10] https://www.nao.org.uk/wp-content/uploads/2016/03/Entitlement-to-free-early-education-and-childcare.pdf
[11] Brewer, M., Cattan, S., Crawford, C., & Rabe, B. (2014). The impact of free, universal pre-school education on maternal labour supply. London: Institute for Fiscal Studies.
[12] Brewer, M., Cattan, S., Crawford, C., & Rabe, B. (2016). Free Childcare and Parents' Labour Supply: Is More Better?. London: Institute for Fiscal Studies
[13] Department of Education (2016) Education provision: children under 5 years of age, January 2016. https://www.gov.uk/government/statistics/education-provision-children-under-5-years-of-age-january-2016
[14] Ceeda (2014) Counting the Cost: An analysis of delivery costs for funded early years education and childcare.
[15] HMRC (2015) Child and Working Tax Credits Statistics Finalised annual awards 2013-14: Geographical analysis
[16] Jarvie, M. (2014) Families on the brink: welfare reform in London. London: Child Poverty Action Group
[17] Slater, H., Sofola, A., Butler, A., Rutter, J. (2016) Invest in Childcare, Invest in London. Family and Childcare Trust.
[18] Institute for Public Policy Research (2017) The Future of Childcare in London: Devolving funding for greater affordability, access and equality. London. IPPR. https://www.ippr.org/research/publications/the-future-of-childcare-in-london
[19] Brown, Richard, and Bosetti, N. (2017) Open City: London After Brexit. Centre for London. http://www.centreforlondon.org/wp-content/uploads/2017/07/CFL5511_London_after_brexit_report_300616_WEB_EDITED2.pdf
[20] Department for Education (2016). Early years national funding formula: local authority allocations -2017 to 2018 financial year.
[21] See page 31 in Brown, Richard, and Bosetti, N. (2017) Open City: London After Brexit. Centre for London. http://www.centreforlondon.org/wp-content/uploads/2017/07/CFL5511_London_after_brexit_report_300616_WEB_EDITED2.pdf
[22] Naumann, I. K. (2015). ‘Universal childcare’and maternal employment: the British and the Swedish story. IN DEFENCE OF WELFARE 2, 79.
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