Mr Osborne, go to Ireland and talk Early Years over a cup of tea and a Kimberley

March 25th 2013

(While I am desperate to blog about our work with Europe and the recent Wave Trust report Conception to age 2 – the age of opportunity, which I will do next week, I feel first of all obligated to comment on last week’s budget.)

I am no economist, but as an ordinary citizen I remain worried by the time it is taking to turn around this great juggernaut of a recession. More and more, slowly but surely, parents are falling into debt as many women continue to lose their jobs. The story is told every day in the shape of occupancy here at LEYF. For those who do not run nurseries, hotels or airlines, occupancy is the main measurement of our business survival, so something we watch with hawk like intensity. And it’s noticeable how its fluctuations have played a significant part in us having to ask managers to turn all their warmth and enthusiasm for the job into a saleable offer to parents. (The importance of sales is a live conversation at LEYF, in particular how we pursue such an overtly commercial goal whilst staying true to our core social values; to understand how these have helped us deliver 110 years of great childcare).

With a Dan Pink lecture at the RSA on this very topic fresh in my mind, the budget’s big childcare announcement was the introduction from 2015 of a childcare tax subsidy (in the form of vouchers) giving working parents up to £1,200 a year to help with childcare costs. We knew about those on Tuesday as we had ITV and Channel 4 visit our Bessborough and Marsham Street nurseries to talk with parents on the matter. As you can imagine, the majority of our parents are in the lower income bracket, so are unlikely to see much immediate benefit from such breaks. The Budget also announced an additional £200 million for the childcare element of Universal Credit. This will be equivalent to 85 percent of childcare costs for those parents who qualify. However, this new source of funding will only go to families where all adults are taxpayers. This will be phased in from 2016 to coincide with the implementation of the childcare element through Universal Credit.

The childcare vouchers will replace the current Employer Supported Childcare system. There has been lobbying for a more simplified funding system that would pay providers directly. As ever the devil is in the detail and consultation with nursery operators, voucher providers and employers will commence shortly. The key success criterion will be making sure the payment system does not negatively affect cash flow; it’s a problem now, so if we’re to avoid debt accruing further, ensuring successful implementation is critical. The new scheme will be overseen by HMRC.

Elsewhere it was confirmed that the Dedicated Schools Grant will be exempt from changes made in the spending round announcement scheduled for June 2013. This will mean free entitlement funding for Early Years will be protected from any cuts, although the funding is not ringfenced, so remains at the mercy of individual local authorities.

Certain broader announcements designed to stimulate the labour market may benefit small struggling nurseries, such as growth vouchers for small businesses to fund business advice; and Employment Allowance of £2,000 relief against their employer NICs bill from April 2014. It is thought this will benefit up to 1.5 million employers and will see businesses able to hire up to four workers on the adult National Minimum Wage without paying any employer NICs on their wages. (Despite this, I truly hope all employers based in the capital will aim to provide the London Living Wage to staff.) In addition, the personal tax allowance threshold was raised to £10k from 2014 – one year early.

More general pointers include the fact that State sector pay rises are capped at 1% in 2015-16. There will £3 billion additional departmental efficiencies (excluding health and schools)  to be spent on capital projects, so we may yet get more Two Year old capital funding.  Apparently there will be £1.6 billion industrial strategy funding, including apprentices in line with recommendations from the Richard Review. Apparently, the National Apprenticeship Service figures show that childcare is one of the most oversubscribed apprenticeships, with more than 13 applications per vacancy. We have yet to see this: maybe it’s how they calculate this figure, including initial forms from those so unsuitable the chances of them been appointed on a course are nil. We will need apprentices with an A to C in Maths and English – and I wonder how many of the 13 have those qualifications?!

It is good the Government is looking at supporting childcare, but as I pointed out to Gary Gibbon – the debonair political editor of Channel 4 News – to make a real difference, funding needs to go to services rather than pumping more money into the market via parents, which only leads to greater cost inflation with little change in affordability.

There is much to be learned from Australia which operates a mixed market model like us. When they put more money in the hands of parents, it did not lead to greater purchasing power, nor did it keep prices low and stable; instead it increased childcare costs to parents, with prices rising in 2012 by almost 10 percent. It’s pretty impossible to make a profit from childcare, especially if you want to pay staff a reasonable wage and maintain a high level of qualified staff as the baseline of quality.

In Ireland they are arguing for a National Early Years Strategy to deliver a childcare and after school service that is best for children.  They want the Irish Government to invest 2.0% of the GDP, which currently looks like a £2 billion investment; they see it as an investment with a reliable return. (Heckman, Starting Strong and the raft of other economic arguments.) They are rejecting the market-led approach as they believe controlling the cost to parents directly, and offering a longer-term and more predictable source of funding to providers, is the best and most effective model.

Our three Kit Kat loving leaders share a view about the importance of childcare: they all agree there is a role for the tax payer to help make it affordable. What they need to do now is be brave and lead a revolution that takes us out of the current market-led failure and into a more innovative but efficient long-term investment mode.