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The Broken Childcare Market Is a Classic Government Failure

June 26, 2018 in Economics

By Ryan Bourne

Ryan Bourne

Last week came further warning signs about the strains and
challenges in the broken childcare sector.

A survey for the Professional Association for Childcare and
Early years (PACEY) warned that nursery closures were up almost 50
per cent last year, and that providers were struggling to retain
good staff because of funding pressures.

In the not-too-distant future, childcare policy will be taught
as a case study in government failure. Well-intentioned
interventions are having perverse consequences and rapidly leading
to more and more state control.

Let’s start with the government’s expansion of
“free” childcare to 30 hours for three and four year
olds. This has made nurseries increasingly dependent on government
funding. But the state generally provides lower fees per hour than
private consumers.

interventions are having perverse consequences and rapidly leading
to more and more state control.

When the state only offered 15 hours of free care, nurseries
cross-subsidised these low fees by charging more to non-subsidised
customers. With the doubling of free care, their scope for doing
this has been much diminished. Some businesses are becoming
unviable as a result, and others restrict places, cut costs, or
charge parents for extras.

This was all predictable and predicted. But it is only a
microcosm of the mess of contradictions that UK governments have
tangled this sector in.

At one time or another, Conservative and Labour administrations
have justified extensive regulation and state subsidies with the
aims of: supporting mothers into work, improving care quality,
making childcare more affordable, and ensuring that it is

Some of these aims are directly contradictory, while the
policies result in huge trade-offs.

The “free” care, for example, improves affordability
for recipient groups and might allow more mothers to go back to

But if PACEY is right that it leads to nursery closures and
constrained staff pay, that could reduce accessibility to care
settings. Lower wages are likewise likely to attract lower quality
staff into the sector.

Similar unintended consequences occur elsewhere.

It is hoped that staff-child regulations will deliver quality
care by ensuring that children are not neglected. Yet they either
reduce the revenue-earning potential of each carer (since they can
be responsible for fewer children at once) or increase the costs of
provision for a given number of children.

If this results in lower staff wages, again it will result in
lower-quality workers being attracted to the sector, making the
overall effect on quality ambiguous.

Increased business costs also reduce supply, as more nurseries
struggle and fail. This leads to higher prices for consumers, not
only reducing affordability but also encouraging parents to use the
informal sector, which may be lower quality.

Indeed, studies of childcare regulation in the US …read more

Source: OP-EDS

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