The expansion of early learning and childcare: evaluation report 2017

5. Affordability

Key findings

• 69% of parents with eligible children said they experienced some (52%) or significant (18%) affordability difficulties paying for ELC for their pre- school aged children in the past 12 months.
• Parents who pay for at least some of their ELC are estimated to spend an average of £494 per month for all children below primary school age.
• Estimates for the average cost to parents of purchasing an hour of ELC range from around £3.87 to around £4.45. In real terms, prices have been relatively stable over recent years
• 52% of parents with eligible children who use the funded ELC entitlement also use paid ELC
• This suggests that the expansion is likely to give considerable financial benefits to parents.
• The net financial benefits may on average be lower for parents with lower incomes, because proportionately fewer parents with lower household incomes pay for childcare than those with higher incomes, and those who do on average spend less. Moreover, some of the benefits for low-income households may be offset by the withdrawal of working tax credits which are partially linked to childcare expenditure and to income.
• Nonetheless, parents who pay for childcare in lower income groups on average spend a higher proportion of their income on childcare, and more frequently report that they find it difficult to afford childcare. In addition, if parents with lower incomes on average use the increased ELC hours to start paid employment or work more hours, this could reduce the difference in net financial benefits for parents in higher and lower income groups.

An important aim of the ELC expansion is to make childcare more affordable for parents. The affordability of early learning and childcare does not just depend on the number of hours of funded ELC, but also on the costs of ELC in the private sector if parents want to purchase extra hours of ELC, and on parents' overall household income. This chapter provides information on the hourly costs of ELC, household spending on childcare, and affordability difficulties. These can be used as a baseline to monitor changes in affordability as the expansion to 1140 is being rolled out up to 2020, and beyond. The chapter also includes two scenarios to model the different net benefits the expansion to 1140 could have on different households.

Hourly costs of early learning and childcare

Estimates for the average cost to parents of purchasing an hour of ELC range from around £3.87 to £4.45. These estimates are based on a survey of ELC providers in 2016 ^[31] and an annual publication by Family and Childcare Trust ( FACT) ^[32] . The latter suggests that costs in eastern Scotland are slightly higher than in the west, Highlands and islands.

In general, prices appear to be following an upward trend over recent years, although in real terms, when inflation is taken into account, the picture is more stable with little movement apparent since 2013. This implies that on average the affordability for families of a given number of hours additional ELC has not changed significantly since 2013.

Average household spend on early learning and childcare

In the 2017 ELC parent survey 59% of households with children below 6 said they pay for at least some of the regular early and childcare they use.

Only looking at households who pay for ELC, the 2017 ELC parent survey suggests that parents who pay for childcare spend an average of £494 per month for all children below primary school age.

While the average spend on ELC amongst parents who pay for ELC is estimated at £494 per month, the ELC parent survey showed that there is considerable variation between parents. Of those eligible parents who pay for ELC:

37% spend less than £300 per month
40% spend between £300 and £700
23% spend £700 or more

Household spend on children eligible for funded early learning and childcare

59% of parents of children eligible for ELC in the 2017 ELC parent survey said they buy at least some ELC provision for their eligible child (52% in addition to funded provision, 4% use paid ELC only, 3% in addition to informal regular ELC only) (see also chapter 7).

On average, parents of eligible 3 and 4 year olds who pay for ELC buy almost 7 hours of ELC per week per child. For eligible 2 year olds this is 3 hours per week.

Parents who said they would use (almost) all of the 1140 hours funded ELC when it becomes available were asked if they would want or need to top up the 1140 funded hours with childcare they pay for themselves.

42% said they would top up the 1140 hours with paid childcare
31% said they wouldn't
27% didn't know

Household expenditure on ELC and income/deprivation

On average, parents in lower income groups or living in more deprived areas are less likely to pay for ELC than those in higher income groups and less deprived areas.

For example, the 2017 ELC parent survey showed that amongst parents of children eligible for ELC living in the most deprived areas 45% pays for at least some of their ELC, while this is 65% amongst those in the least deprived areas.

45% most deprived
65% least deprived

Parents with higher incomes or living in less deprived areas on average also pay more than those with lower income or living in more deprived areas. For example, in the 2017 ELC parent survey, when looking at parents of eligible children who pay for at least some ELC provision, the average monthly cost for all children reported by parents living in the most deprived areas is £405, around a third less than the average of £624 for those in the least deprived areas. This is also evident in the range of costs reported by parents. For example, 35% of those in the least deprived areas report costs of £700 or more per month, compared to 12% of those in the most deprived areas.

Likewise, parents with higher household income on average spend more on ELC. Looking at parents with eligible children who pay for at least some of their ELC provision, the average monthly spend of parents in different household income groups reported in the 2017 ELC parent survey is:

Figure 16: Average monthly ELC spend of parents who pay for ELC compared to annual household income (2017 ELC Parent Survey)

The fact that households with higher incomes on average spend more on early learning and childcare is likely a combination of two things: 1) households with higher incomes being more able to afford childcare; and 2) households with two working parents or with parents working more hours on average need more hours of childcare but also on average have a higher income.

However, while households with higher incomes tend to spend more on childcare, there is some evidence that compared to their income, parents who pay for childcare in lower income groups on average spend a higher proportion of their income on childcare than those in higher income groups. ^[33]

Modelling net effects of the 1140 expansion on income

In practice, the average number of hours that parents want to use ELC is related to the average hours they work, and thus to their income. Moreover, parents' income and expenditure will be related to the taxes and deductions they are entitled too. Because of this, the expansion of funded ELC will likely have a different effect on the net financial gain for different groups of parents. Here are two scenarios (amongst many others) which model potential effects of the 1140 hours policy on parents' disposable incomes when taking account of taxes, deductions and expenditure on ELC:

Scenario 1

Before the 1140 hours entitlement: A single mother of a 4 year old works part-time 20 hours a week, earning the average for women in Scotland of £13.58 per hour. Her gross salary would be an estimated £14,123 per year. Beyond the 600 hours entitlement, she would require around 5-10 hours of wrap-around care per week. Given the above assumptions, she would be entitled to around £256 per four-week period in Child Tax Credits ( CTC) and £175 in Working Tax Credits ( WTC), leaving her with total gross income of around £19,726 and childcare costs of £2,000 per year (50 weeks at 10 hours at £4 per hour). Her net income without childcare costs would be around £17,726.

After the introduction of the 1140 hours entitlement, she would not need to buy any additional wrap-around hours, reducing her childcare costs to zero and as a result reducing her WTC entitlement to £63 per four weeks. Her gross income would now be £18,270. After childcare expenses, the 1140 hours policy would result in her being around £544 a year better off than under the 600 hours entitlement.

If she were able to use the additional funded entitlement to work an additional ten hours per week, continuing to purchase 10 hours of additional ELC, she could be nearly £5,000 a year better off with 1,140 hours, in spite of losing around £2,000 in working tax credits.

Scenario 2

Before the 1140 hours entitlement: A working couple works full-time and earns 167% of the average full-time wage with 2 children eligible for ELC. This couple would have gross income of around £54,000 and as a result not be eligible for either Working Tax Credits or Child Tax Credits. They would need to buy 24 hours of wrap-around for each child over and above the 600 hours entitlement. Assuming childcare cost of £4 per hour, they would spend around £9,600 on ELC per year.

After the introduction of the 1140 hours entitlement, they would only need 12 hours of wrap-around per child per week. After ELC expenses, the 1140 hours policy would result in them being better off by nearly £5,000 a year.

Affordability difficulties

Parents of eligible children were asked if they experienced any difficulties in the last 12 months affording childcare costs for children below primary school age.

69% said they experienced some (52%) or significant (18%) affordability difficulties
29% said they experienced no affordability difficulties
2% did not know

The percentage of parents indicating they experienced affordability difficulties varied significantly across different groups of parents. In particular, those in the most deprived areas, those with household incomes of less than £30,000, and those with fewer than 2 adults in employment were all more likely to experience affordability problems. Over 80% of parents in those groups had experienced difficulties, including around 25% with significant difficulties.

Affordability difficulties are also linked to parents' monthly spend on ELC. Parents with eligible children who pay £500 or more per month for their provision are significantly more likely to report affordability problems. 25% of them said they had experienced significant difficulties, twice as much as amongst parents paying less than £500 per month, of whom 13% experienced significant difficulties.

When asked what made it difficult to afford childcare, nearly all parents who reported difficulties mentioned high costs of childcare, but some other factors were mentioned as well:

Figure 17: parent-reported reasons for affordability difficulties, as a percentage of the parents who indicated they had experienced difficulties affording their childcare costs in the past 12 months

Those with a household income of less than £30,000 were more likely than others to have experienced difficulties associated with upfront payment of fees: 33% parents in this income group who said they had experienced difficulties reported this as a reason, compared to 21% of those with a household income of £45,000 or more.

And as described in the previous chapter, relatively more parents with children with additional support needs said transport costs and additional costs for trips or other activities contributed to affordability difficulties.

While a substantial proportion of parents paying for ELC reported having experienced some degree of affordability problems, only 8% of parents mention affordability as a factor in their choice of current ELC provider

It is also notable that few parents indicate that affordability is a reason for their choosing not to use funded hours for their eligible child: only 2% of parents not using the entitlement mentioned the costs associated with ELC as a reason, and 4% mentioned travel costs as a reason.