The costs of extending free childcare hours
Author: Kulvir Channa |
The Labour Party has sought to put its childcare policies at the forefront of the election campaign. It plans to extend the allocation of free childcare hours, totalling 30 free hours for all parents of 2 to 4 year olds. This afternoon, questions have arisen over the costs of this policy.
The costing document for the Labour Party Manifesto says that its policies on childcare and early years, which include halting closures to Sure Start, will total £5.3 billion. These costings have been further clarified today. An initial £2.7 billion will be allocated towards capital investment “to ensure that places exist to meet demand” (Nursery World). Then, £4.8 billion will be provided for the day-to-day running of these childcare places (BBC). However, our analysis of these policies suggests that the costs of extending free childcare hours are severely underestimated. We estimate that the costs of extending 30 hours of free childcare to all 2 to 4 year olds is £7.5 billion per year, not the £4.8 billion claimed by the Labour Party. This estimate does not include the costs of the additional capital investment required to create more childcare places.
Annual cost of Labour’s proposed extension of free childcare
| Total cost | |
| 15 additional hours for all 3 and 4 year olds | £3,771,569,809.80 |
| 15 additional hours for 2 year olds currently entitled for means-tested childcare | £512,840,605.20 |
| 30 hours for 2 year olds currently not entitled for free hours | £3,207,530,356.80 |
| Total cost of Labour’s proposed extension of free childcare | £7,491,940,771.80 |
Funding allocations
The above costs have been calculated through using current government funding allocations: £4.94 (including the Early Years Pupil Premium) for 3 and 4 year olds and £5.39 for 2 year olds. Labour have consistently claimed that the “free hours entitlement is chronically under-funded”, suggesting that they would increase these allocations. Then question, then, is precisely how much would Labour increase these allocations by? Even relatively small-scale increases to these funding levels can hamper the affordability of free childcare for the Treasury.
| Increase in per hour per child funding allocations | Effect on total cost of Labour’s proposed extension of free childcare |
| Current government funding allocations | £7,491,940,771.80 |
| 10p increase | £7,637,311,918.80 |
| 50p increase | £8,218,796,506.80 |
| £1 increase | £8,945,652,241.80 |
A better alternative
In April, Localis published a report on how to sustainably expand the allocation of free childcare hours. Rather than a universal extension of free childcare, that would place a lot of pressure on the Treasury, we proposed for government to reverse its planned extension of additional childcare hours for ‘working families’ of three and four year olds and, instead, invest in means-tested free childcare. Combined with current universal provision of 15 hours for 3 and 4 year olds, this would offer low income families with 15 free hours of childcare for 1 and 2 year olds, and 30 free hours of childcare for 3 and 4 year olds. Such a proposal would cost significantly less than Labour’s proposal and, combined with the reversal of government’s planned extension, would save the Treasury an estimated £64 million.
Free childcare provision for a low-income family
| Age of child | Current free provision | Government’s planned extension | Labour’s planned extension | Our proposed extension |
| 1 | No provision | No provision | “move towards…some childcare [provision]” | 15 hours (means-tested) |
| 2 | 15 hours (means-tested) | 15 hours (means-tested) | 30 hours (universal) | 15 hours (means-tested) |
| 3-4 | 15 hours (universal) | 15 hours (universal), plus 15 hours for ‘working families’ (not all low-income families eligible) | 30 hours (universal) | 15 hours (universal), plus 15 hours (means-tested) |
| 5 | School starting age | School starting age | School starting age | School starting age |
| Estimated costs of proposed expansions | £1,618,003,448.40 | £7,491,940,771.80 | £1,553,745,284.40 |
Calculations for Labour’s planned extension of free childcare
The costs of 15 additional hours for all 3 and 4 year olds has been calculated through using the average of £4.94 per child per hour for 15 hours in 38 weeks of the year. This was then multiplied by the 1,339,430 three and four year olds currently using some form of free education.
The costs of 15 additional hours for 2 year olds currently entitled for means-tested childcare has been calculated through using the average of £5.39 per child per hour for 166,924 two year olds currently receiving some free early education.
The number of 2 year olds currently not entitled for free hours has been estimated at 522,008. The total cost of providing 30 hours of free childcare for this cohort has been calculated through using the average of £5.39 per child per hour.
Sources: Department for Education – Local authority allocations under the early years national funding formula; Table 2, Provision for children under 5 years of age, 2016, ONS; Population estimates – local authority based by single year of age, 2015, ONS (accessed via NOMIS)
The calculated costs of both our and government’s planned extensions of free childcare are available in the Appendix of our report.