- Centre for Employment Relations, Innovation and Change
The UK’s childcare system is inefficient and unsustainable. It is a financial drain on families (over the first 18 years of their children’s lives, couples in the UK spend an average of £157,562 household income on children, a lone parent over £208,000), and the prohibitively high costs for parents have negative impacts on women’s employment and career progression.
Only 23 per cent of people in the UK are concerned about gender inequality and view it as one of the most serious forms of inequality in the country. This is despite the UK historically ranking low on global gender gap indices, including the World Economic Forum’s 2022 and the UNDP’s Gender Gap indices (22nd and 27th, respectively). As a comparison, 37 per cent of Swedes say the same, yet Sweden ranks 5th according to WEF’s 2022 index.
The position of women in the UK labour market has been of long-standing concern with progress made over the past half century but persistent ongoing challenges on multiple fronts including occupational segregation and gender imbalances in pay, promotion, and representation at senior levels.
The disconnection between girls’ overall superior performance at school and in higher education, and their subsequent diminished position and achievements in the labour market is stark. Since the Equal Pay Act in 1970, legislative change has been instrumental in positive change for women’s opportunities in the workforce.
Well-crafted policy and legislation will continue to be vital in addressing the ongoing challenges but a new emphasis on policy and practice working together is essential. Access to high quality jobs and equal opportunities for women who now make up just short of half the workforce is vital as we lack skills and search for productivity gains in the UK.
Damaging the economy as well as women’s careers
Affordable quality childcare plays an instrumental role. Despite attention to structural and legislative factors, which led to considerable gains in gender equality, the COVID-19 pandemic has revealed a deeply embedded ‘culture of social obligation’ of women as primary caregivers.
The traditional division of unpaid work and unavailable childcare services are not trivial for women, who remain most likely to adapt their workforce participation to carry out family responsibilities. The implications are further pronounced when women have more children and/or provide care to other dependants, contributing to their cumulative disadvantage across life.
Consequently, women leave the workforce in significant numbers at several points in their working lives. They often experience difficulties in returning to work after maternity leave or career breaks and more often have their career progression hampered by even short periods of leave. When family needs arise, they are more likely than men to cut the number of hours or leave the job.
They are often ‘pushed out’ of the workforce at different stages, especially when working hours and workplace requirements are difficult to manage alongside caring responsibilities. Once outside, women face difficulties getting back in; even a few years away impacts their lifetime earnings and pension rights.
Many women also work below potential (failing to utilise all their skills, experiences, or qualifications) in low-paid, part-time jobs which they take up because of their better fit with caring roles. They often lose confidence in their skills and abilities and become trapped in low status jobs with few opportunities for training to facilitate career progression.
The notorious lack of affordable childcare disproportionately affects women. Namely, childcare costs operate in the same way as a reduction in female wages: the higher they are, the lower the probability of women working or working full-time. Coupled with cuts in Working Tax Credits and Child Tax Credits, high childcare costs reduce income gain for many families; even well-paid professional women report that, after paying childcare, tax, and national insurance contributions, they see little of their after-tax earnings.
In addition to prohibitively high childcare costs in the UK, a significant mismatch between service hours and working hours further creates tensions in a family’s daily life. Many want to switch to flexible work after maternity leave, but this option is not offered as an absolute right; where available, the penalties in terms of career progression are often perceived as prohibitively high. Such policy context often leads to women, not men, to reducing work hours or leaving the labour force altogether; for many women, leaving the workforce is a (non-)option on which to fall back instead of a choice. This means that women, particularly those with care responsibilities, are exposed to lower pension benefits and higher risks of poverty in old age.
The Women and Work Commission estimated that under-use of women’s skills cost the economy between £15 and £23 billion a year. Addressing the career break penalty could boost female earnings by £1.1 billion a year, equivalent to £4,000 per woman. Higher earnings and spending power of women could generate additional gains to the UK economy of £1.7 billion.
Problems with the UK’s demand-priming approach
Unlike the relatively standardised and supply-led childcare arrangements in many EU countries, in the UK parents are reimbursed through the tax and benefit system for childcare purchased in the open market, where fees are set by providers to maximise profitability. Parents can receive financial help directly and other subsidies go directly to childcare providers through the “early years entitlement”.
Retrospective reimbursement through the tax and benefits system is inefficient and a deterrent for many families and an array of actors operating across sectors and funding mechanisms add to high costs – namely, the Government operates at least eight schemes across different Government departments to subsidise the cost of childcare, including the “free hours” entitlements, Tax-Free Childcare, support through Universal Credit, and VAT subsidies. Such a ‘supply-led system’ opens space for parents across socio-economic groups to access childcare via direct funding.
In contrast, the current UK demand-priming approach, where parents receive financial help directly through complex and expensive funding mechanisms and operating rules, are set by providers to maximise profitability, creating childcare gaps. It increases costs for parents, and the level of household income and/or childcare subsidy, tax allowance and employers’ assistance become crucial.
As child-related tax deductions are not available at the time when parents incur childcare expenses, but, conventionally, in the following fiscal year, affordability is particularly relevant for low-income and single mothers/parents with limited earning prospects.
What needs to change?
Understanding the sources of gender inequality is important in informing effective government and business intervention and allocating public and private resources efficiently to achieve sustainable gains. Standard statistics on labour force participation paint only a partial picture of employment opportunities, and access to high quality childcare, jobs, and progression opportunities remain important workplace and policy issues.
To put the UK’s childcare cost crisis in perspective, it is worth looking to how other countries, many of them Nordic, have forged ahead with making universal, quality childcare a priority and what that means for their welfare, well-being, prosperity, wealth, and most importantly, for gender equity.
The government should increase direct social investment in childcare, improve targeted support, and introduce price regulations and guidelines to ensure that public support reaches the groups who need it most (the equity principle of social policy).
The priority needs to shift away from demand-priming through cash transfers and a focus on subsidies for parents in work, towards funding and developing a supply-led system with a universal or means-tested and capped fees based on a sliding-fee scale. Direct funding and provision of quality childcare is a proven tool for poverty reduction and more equitable take-up.
Childcare is a strategic political, social, and economic imperative. As such, it is likely to be a key battleground for the UK’s next general election, and political parties need to convince the electorate that they are serious about transforming childcare by committing to a universal quality childcare service for all.
If you would like to get in touch regarding any of these blog entries, or are interested in contributing to the blog, please contact:
Email: email@example.comPhone: +44 (0)113 343 8754
Click here to view our privacy statement. You can repost this blog article, following the terms listed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International licence.
The views expressed in this article are those of the author and may not reflect the views of Leeds University Business School or the University of Leeds.