The Treasury is considering a proposal to massively expand free childcare to one- and two-year-olds in England in a move that would cost billions at the spring budget.
Department for Education officials have submitted a plan for a free 30-hours-a-week entitlement for working parents of children aged nine months to three years, after being asked to work up options by the Treasury.
Other options include offering a smaller number of free hours for two-year-olds, an offer of 10 free hours for disadvantaged one-year-olds, and adjusting the ratios for childcare providers to allow adults to look after more children.
It comes after Labour signalled it would make a transformational offer to parents at the next election, with the shadow education secretary, Bridget Phillipson, pledging a modern childcare system that works from the end of parental leave until the end of primary school.
The Confederation of British Industry (CBI) has also called for billions to be spent on extra free childcare and reform of the system, while a group of influential Tory backbenchers, led by Siobhan Baillie, is pushing Hunt to cut childcare costs at next month’s budget.
The current free provision in England is 30 hours a week for working parents of three-year-olds unless one parent earns more than £100,000 a year, while provision for two-year-olds is limited to 15 free hours a week for those whose parents claim some benefits. Schemes are funded and set up differently in Scotland, Wales, and Northern Ireland.
The Treasury requested the work from other departments as part of its drive to get more people into employment, including young people, new parents and the recently retired. The Department for Education is understood to be feeding into the “inactivity” package of proposals being undertaken by the Department for Work and Pensions.
Labour market changes are likely to form the centrepiece of the spring budget. However, there are already worries within the Treasury about the probable £5bn to £10bn price tag of a big childcare offer, with one source saying Jeremy Hunt, the chancellor, was “concerned about cost” and would be unlikely to approve such a big offer.
One Treasury source said a big expansion of free 30-hour a week entitlement was the most expensive of a long list of options being looked at and it was difficult to see that amount of money being committed.
Other ideas include reducing the universal credit taper rate, which could be another option to incentivise employment if the childcare proposals prove too expensive.
Another option under consideration to help with childcare costs is a drive to make it much easier to register as a childminder, as these are the majority of provisions currently closing rather than nurseries and accounting for a shortage of places. There could also be a campaign to make parents more aware of the option of using childminders, not just nurseries.
On the proposal to massively expand free childcare, Robin Walker, the Conservative chair of the education select committee, said: “If this proposal has been put forward, the Treasury should definitely look very carefully at it. And they should consider how much money it will save in the long term [through increased economic activity] rather than just how much it will cost upfront.”
While some Tory MPs have been pushing for childcare changes, others keen on tax cuts are likely to worry about the price tag at a time when they would rather see the tax burden reduced.
It comes after Labour set out its intention to transform childcare if it wins power, with Phillipson saying parents are being “held back by a childcare system that just doesn’t work”.
The party has signalled it is prepared to make big changes, with the first step being universal free breakfast clubs for every primary school child in England.
Labour has also said it will enable councils to open new maintained nursery provision where they have the capacity.
A Labour source said: “An expansion of hours without reforming our broken childcare system will not deliver for families or grow our economy. An offer of additional hours is a waste of time if it doesn’t deliver more childcare places and higher standards.
“We currently have vast childcare deserts where there is no adequate private sector provision to deliver the existing system of hours. Which providers will deliver these new hours when families can’t access available childcare as it is?”
Pressure for reform of the childcare system is not just coming from the opposition but business groups too. The CBI said this week that the government should funnel billions of pounds into free childcare to help get more parents into work to tackle acute workforce shortages.
The group said the government urgently needed to announce extra funding and changes to childcare and early years support, arguing that a more accessible and affordable system was an immediate economic priority.
The lobby group, which represents more than 190,000 businesses across the country, said as much as £9bn of investment was required to improve the system and expand free childcare to one- and two-year-olds.
Hunt’s spring budget comes as ministers review options for increasing participation in the workforce after an exodus of “missing workers” since the Covid pandemic.
Official figures show almost 9 million working-age adults are economically inactive – neither in work nor looking for a job – including men and women who are caring for family.
Studies suggest inadequate access to childcare prevents about 1.7 million women from taking on more hours, equating to more than £28bn in lost economic output each year and exacerbating cost of living challenges.
The former prime minister Liz Truss last month urged Rishi Sunak not to ditch her proposals on childcare changes, including plans to scrap mandatory staff-child ratios in nurseries and increasing funding by 20 hours a week. However, she faced opposition over the ratio plan amid concerns over the quality of care, while business leaders are understood to favour increased funding.
A Department for Education spokesperson said: “We recognise that families and early years providers across the country are facing financial pressures and we are currently looking into options to improve the cost, flexibility, and availability of childcare.
“We have spent more than £20bn over the past five years to support families with the cost of childcare, and the number of places available in England has remained stable since 2015, with thousands of parents benefiting from this.”
