Harriet Baldwin MP: Use childcare subsidies to get women back to work

Harriett Baldwin is the Member of Parliament for West Worcestershire and a member of the Work and Pensions Select Committee.  Follow Harriett on Twitter.

Warren Buffett, the ‘Sage of Omaha’ and the world’s third richest man, knows a thing or two about economics and wealth creation.  He made his $44 billion fortune from scratch by investing in companies for the long term.

On the BBC Radio 4 Today programme between Christmas and New Year, he made some remarkable comments about women and their untapped potential to help Western economies grow.

He told listeners: "Women have been subjugated since time immemorial”. Speaking about his own sisters, he noted they were:  "Two human beings with enormous potential and it was assumed they could be a nurse or a secretary or a flight attendant. Or they could be a teacher – but not in upper education. What a waste of human talent – 50 per cent of the population was pushed off into the corner for two hundred years."

But he said he was now upbeat. "I see how far we've come using only half the talent in the country and now we're getting to the point that we are using 100pc. It makes me optimistic but we still have a way to go".

Although the professions Warren Buffett mentioned are vital and definitely not a waste of human talent, he was spot on about the economic potential.  My mother left her job the day she married my father. Today, young women are getting often better results than young men in our education system and moving into well paid jobs.  Women in their twenties now earn more than their male peers. [ONS 2010 Annual Survey of Hours and Earnings]  By equalising men and women’s retirement age by 2018, we should begin to see an improvement in relative earning power for older women too.   Sharing parental leave should also help.

But around the age of thirty, when women start families, we see a sharp drop in earnings and work participation [ONS 2010 Annual Survey of Hours and Earnings]. 

The cost to the economy is enormous. In the 2010/11 tax year, men paid £92 billion in income tax to the Exchequer.  The equivalent for women was £36.8 billion, a startling £55 billion or 60% less. [Hansard: HC Deb, 30 January 2013, c796W]

So is it a childcare issue? Many couples actively choose one partner to stay at home to raise a family - often that is the mother – and this should be welcomed. But many parents, even on professional incomes, find that the cost of childcare stops them being able to continue to work. Their job progression suffers.

As a country, we are already spending billions on childcare subsidies.  Mothers get a year’s maternity pay.  Lower income parents can get up to 70 per cent of their childcare paid, up to £300 a week for two children.  Parents of three and four year olds get 15 hours of free nursery provision.   Lower income parents will this year start receiving an entitlement to 15 hours for children from the age of two.  Some employers provide childcare vouchers which allow you to spend about £1,000 on childcare out of pre-tax income.  The total costs the Exchequer £7 billion [DfE October 2010]

But this still leaves gaping holes in provision, particularly for the reasonably well-paid professional woman starting a family with a salary as high as £40,000 a year [IPPR Making the case for Universal Childcare, December 2011]. For the sake of professional career growth, female economic equality and economic growth, it must be worth trying to think again about how we can better allocate taxpayer cash in this area.

Some will argue that the subsidies should only help women in low wage work. I certainly think that this subsidy is important, because of the extensive evidence that children who grow up in a workless household are likely to suffer a lifetime of poverty.  But rather than focus this subsidy on just low wage parents, let’s make it a universal full-time offer to all children aged between 1 and rising 5 who choose not to be stay-at-home parents.   Let’s make free child care available just to those who will use it to work.  And let’s ask for a contribution for each child at a percentage of the parent’s net earnings so that it’s a progressive scale.

By enabling more women to remain in the workplace we will also gain the benefit of increasing the amount they contribute to the Exchequer in income tax. There is a shortfall of £55 billion a year of foregone revenue that can be found by helping more women into the workplace. We working mothers won’t match men in our earning power immediately, but in time removing this barrier to the full economic potential for women will surely pay for itself.