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HomeNewsKristian Niemietz: Not another childcare subsidy – how about deregulating childcare instead?

Kristian Niemietz: Not another childcare subsidy – how about deregulating childcare instead?


Childcare policy used to be a very simple issue. Classical liberals, and many conservatives, used to argue that if parents with young children wanted to earn two salaries, then they should pay for the childcare services that enable them to do so.

Those on the left, meanwhile, saw tax-funded childcare subsidies as a tool to raise female employment rates. They also saw the inevitable redistribution from single-earner to double-earner parents as desirable: the latter had embraced a modern, ‘emancipatory’ lifestyle, and ought to be rewarded for it.

But nowadays, those old arguments have come to ring hollow. The much-discussed cost of living crisis has increasingly rendered the single-earner household economically unviable.

For many low-to-middle income households, the second earner’s salary is no longer just an optional income that pays for holidays and dining out. It pays, instead, for the basics.

Take London as the tip of the cost-of- living iceberg. London’s median rent (for a two bedroom flat) now amounts to about two thirds (!) of a median full-time net salary.

But the irony is that while the cost of living crisis makes more households reliant on a second income source, and therefore on childcare services, the spiralling cost of childcare is itself part of the cost of living crisis. Affordable childcare has become a necessity, and childcare policy is no longer the simple issue it once was.

But the coalition’s new plans are wholly inadequate to deal with the problem. Under the new scheme, the government will reimburse double-earner parents with 20 percent of their childcare costs, up to a limit of £2,000 per year.

It is a straight payment to the parents who use registered childcare. The basic problem with this approach is that it attempts to fight a supply-side problem with a demand-side measure.

Yet if public spending was the solution, we would have solved the problem long ago. In terms of public spending on childcare subsidies, the UK already matches the levels of Sweden, the role model country of welfare enthusiasts.

The problem is that total childcare costs – the sum of private and public spending – are too high in the UK, and shifting a greater proportion of those costs from customers to taxpayers will do nothing to address that.

The cost of complying with burdensome regulations, the high inspection and licensing costs faced by childcare providers, the high degree of formalisation and the mandatory staff-to-children ratios push up the price of what should be a relatively straightforward product.

The coalition’s new scheme will also further increase the system’s already excessive level of complexity by introducing yet another funding stream.

There is already a means-tested cost reimbursement scheme contained in the Working Tax Credit; 3- and 4-year-olds are already entitled to 15 hours per week of ‘free’ childcare; some Sure Start centres already provide childcare services at subsidised prices; and there is already a tax-deduction scheme which encourages employers to co-sponsor their employees’ childcare costs.

Another demand-side subsidy stream is as useful as a hole in the head. What we need instead is a deregulation strategy to push down childcare costs to the European average, or below.

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Kristian Niemietz
Kristian Niemietz
Kristian is a senior research fellow at the Institute of Economic Affairs (IEA). He is the author of the book ‘Redefining the Poverty Debate’.

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