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Osborne needs a childcare plan to help boost growth

By Paul Goodman
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The perfect world for childcare that doesn't exist.

In the perfect world that doesn't exist, parents would have childcare choice.  Mothers (and fathers) who want to stay at home to care for their children could do so while the other partner worked.  Families who prefer to use informal childcare, such as grandparents and friends, would have it on tap.  If they opted for more formal types of care from childminders to day nurseries - whether the provision in question was state or private or voluntary or charitable sector - it would available and affordable.  Breakast clubs and after-school care would be standing by to fill the childcare gaps during parents' working days.

But parents are no more likely to live in an ideal world in the near future than anyone else.  The post-war years when family allowances were so large as to minimise the working man's tax bill and allow his wife to stay at home with the children have long gone, along with the manufacturing work that he did and the factories he did it in.  House prices are high, private debt is huge, service jobs are many - at least those with atypical hours, compared to other EU countries (see the Resolution Foundation's recent report on childcare) - and mothers' aspirations have changed.  No wonder almost three-quarters of British women of working age now labour outside the home.

The needs of middle income families are being overlooked

Those who believe that tax help for families is wrong will shrug their shoulders, unwilling as they are to distinguish between children and consumption goods.  Those who care or think little about the future take the same view, the logical end-point of which is even higher immigration or lower growth as birth rates fall.  But the debate about family policy and childcare isn't simply about the future.  It's about now, and whether or not David Cameron wins the majority at the next election which eluded him at the last one.  The living standards of Britain's families are set to fall by more than 10% during the next three years.

Their needs are often overlooked, since policy debate tends to concentrate on the extreme ends of the spectrum.  On older people, who now have an earnings-linked state pension alongside their free bus passes and winter fuel allowances.  On younger ones, unable to buy houses until their 30s and now facing more debt as tuition fees rise.  On poorer ones, and whether they should be sheltered from the effects of that increase, gain most from free schools, and be taken out of tax altogether.  On richer ones, and whether they should swap the 50p rate for a new mansions tax or a higher council tax rate.  Most people are neither rich nor poor, but somewhere in the middle.

Without the support of middle income voters, Cameron won't win the next election.

Without the support of this group, and those among them who are strivers, battlers, breadinners, poundstretchers, the squeezed middle, Sid's heirs or whatever you want to call them, that Conservative majority won't happen.  The lack of interest in their needs is astonishing - and, for the Government, self-destructive.  So what should its childcare policy be?  A good rule of thumb is: find out what Gordon Brown did, and then do the opposite.  And he did to childcare what he did everywhere else: namely, expand the power of the state.  In characteristic Soviet-Commissar-trumpeting-factory statistics mode, he committed Labour to delivering more free childcare.

The policy sounded appealing - and was in some respects. But nothing the state provides comes free, of course: it must be paid for.  And both parents and providers were swiftly reminded that there's no such thing as a free lunch or free childcare.  Private sector and voluntary providers complained that Brown was short-changing them, providing less money to fund the free hours he'd promised than his boasts implied.  Parents were barred from topping up the money the providers hadn't got, presumably on the ground that such a move would be elitist.  When I was Shadow Minister for Childcare, these sectors was convulsed by complaints.

How to do the opposite to Gordon Brown

Doing the opposite to Brown, then, would mean a choice-based policy.  But choice is dependent on the two sides of the policy coin, supply and demand, and there's not much point in examining the latter.  Britain is broke.  Child benefit is to be reined in for higher-rate taxpayers.  To what degree the universal credit will recognise the cost of childcare is unknown.  So there is little point in debating whether child benefit should be increased, scrapped, or replaced by child tax allowances, as Andrew Lilico has implied.  Were George Osborne to cut some taxes as part of a growth drive, he would go first for business taxes, the 50p rate, and raising thresholds for poorer voters.

The Government could think about shifting the money around, in the spirit with which Tim and I have weighed the merits of altering the tax burden.  For example, it could decide to remove child benefit from older children in order to fund younger ones, in order to help parents when the costs of childcare are at their highest.  This would be the right policy course to take, but I doubt if the Chancellor wants to pick another fight with the interest groups.  That leaves the supply side.  The OECD reports that Britain has some of most expensive childcare in Europe.  Wouldn't new entrants help to bring down the costs?

The private, voluntary and independent sectors need a level playing field

Despite Brown's best (or worst) efforts, parents continue to show a stubborn preference for informal care, provided by grandparents and friends.  But we don't know how many of them would rather be working for different hours or in different parts of labour market - assuming they want to do so, that is - were other provision available.  To Labour's credit, maternity and paternity leave was improved and schools took in younger children.  None the less, both home and school care need competition, surely, from the private, voluntary and charitable sectors.  These are sometimes parents' preferred option, too, after maternity leave ends but before schools take children.

These sectors are well placed to provide childcare that starts with breakfast and ends after school - and runs, too, during those vexed school holidays.  But they pay VAT and rates and inspection costs, while schools are protected from these.  This unlevels the childcare playing field.  I don't want to see parents forced into the labour market who don't want to go there.  But with Osborne likely to miss his deficit reduction target and a more convincing growth strategy urgently needed, the Treasury should be turning its attention to unblocking the childcare obstacles to higher workforce participation.  It's time to level that playing field.


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