Londoners could end up refusing substantial pay rises in a bid to benefit from the government’s major expansion of childcare, MPs have been told.
Millions more parents will be entitled to 30 hours of free childcare each week from when their babies are nine months old, in plans announced by Chancellor Jeremy Hunt in the Spring budget.
The childcare overhaul was designed to help more parents get back to work.
But experts said “very odd incentives” in the system mean wealthier parents such as those living in London may be encouraged to turn down pay rises.
This is because families can only claim the free hours if each parent earns less than £100,000.
Christine Farquharson, associate director of the Institute for Fiscal Studies, said: “Obviously that’s a lot of money, obviously those families are well off. But that blunt cliff edge that’s built into the system creates some very odd incentives where a parent with two very young children in London would be better off refusing a pay rise of almost £40,000 - almost £40,000 they would leave on the table - rather than give up on the childcare support through these new entitlements.”
Speaking to MPs on the education committee, she added: “It strikes me as a slightly odd design feature to put into a policy that we think is supposed to be about promoting labour supply and supporting parents to work.”
The education committee is carrying out an inquiry into support for childcare and the early years and is asking academics and economists to analyse Mr Hunt’s childcare announcements.
As well as expanding the number of families eligible for 30 hours of free childcare, the government also announced incentive payments for new childminders of £600, rising to £1,200 for those who register through an agency and a relaxation of staff-to-child ratios in nurseries.
Ms Farquharson said the changes to childcare amount to a “new branch of the welfare state.”
She said the government will be buying around 80 per cent of the pre-school childcare hours in England, adding: “When you are buying 80 per cent of the market for anything you really have to be sure you are getting the price right.”
She said childcare has changed from being viewed as supporting children to become ready to start school, to being viewed as helping parents get back to work, adding: “The system is being asked to do the job of supporting parents to work, so that leaves us with several real oddities in the system.”
She said the government’s childcare expansion will benefit about one in five families that are jointly earning less than £20,000 a year, but about four in five families that earn more than £45,000 a year.
She told MPs that the changes will not help the most disadvantaged children, but will help families with the highest childcare costs, who tend to be those with higher earnings who live in London or the South East away from their parents.
She added: “If what we are trying to do is really support child development and think about the most disadvantaged children at the bottom of the distribution, by construction these budget proposals are really not about doing that.”
Eva Lloyd, professor of Early Childhood from the University of East London, warned against an influx of private, for-profit childcare providers with no background in childcare.
She said: “It always happens when substantial public money comes into a system. It’s understandable but it has got to be managed.”
