Costing and funding free universal childcare of high quality

Background

This briefing considers the case for providing universal and free childcare services in the UK to promote better child outcomes, foster gender equality and stimulate high-quality employment. It simulates different childcare staff pay and coverage scenarios and analyses their employment and fiscal effects.

Key findings include:

• Public investment in a system of free universal early education and childcare of high quality provided to all children in the UK between the age of 6 months and primary school by qualified staff has long-term benefits for children and their parents, as well as for the economy
• Our modelling (using 2014 as reference) shows that if childcare workers are paid a salary equivalent to primary school teachers and all 3.2m children are offered up to 40 hours a week for 48 weeks a year, the annual gross cost would be £55bn (3% of GDP); if pay rates are based on current wage levels by qualification, the investment is £33bn (1.8% of GDP).
• Employment creation in childcare services and elsewhere in the economy through multiplier effects would add up to 1.7m full-time equivalent jobs under such a scenario, raising the overall employment rate by up to 4.3 percentage points and the female employment rate by 6.4 percentage points.
• Increased tax revenue from additional earnings (including indirect taxation from increased consumption) and reduced spending on social security benefits, has the potential to recoup between 95% and 89% of this annual investment , leaving £1.7bn and £6.1bn net funding need (at current and higher pay rates respectively).
• The net funding need compares with a cumulative annual net give away of £5.4bn through raising income tax thresholds above inflation through the 2015-20 parliament (71% of which will go to men).