Today, the Third Reading of the Childcare Bill takes place in Parliament. Assuming the Bill passes and receives Royal Assent, the introduction of 30 hours a week free childcare for working parents of three and four year olds offers an immediate financial benefit of around £5,000 a year to the 600,000 eligible families from September 2017. But it also offers the chance for the childcare market to evolve into a mature public services market along the lines of 5-16 schooling, or the NHS.
Because the average amount of formal childcare for 3-4 year olds is around 25 hours a week, a system in which the government pays for 30 hours a week will effectively make government the monopoly buyer of childcare for this group of families. We would, in other words, nationalise childcare.
But taken from another perspective, the 30 hours creates a system in which all provision is delivered by a range of independent providers, parents have free choice of where to go, via a voucher system that covered their costs, effectively commissioning their own provision, and with the market responding to supply and demand. Government’s role is as a funder and a regulator.
Mature public service markets such as 5-16 schooling and the NHS operate on a similar basis, with funding following the user on a tariff basis. This has a range of benefits including acting against cost inflation on the provider side, but also preventing cost price competition driving prices down to a level which could risk quality.
This Policy Bite also sets out a range of recommendations for how to further develop childcare as a mature public services market. It includes recommendations on greater transparency of data both for LA commissioners and for users, greater incentives on providers to drive efficiency in their cost base and to grow, greater action by government to incentivise collaboration and mergers where appropriate, and improvements to the workforce.