Free Childcare for 3 and 4-year-olds

Thangam Debbonaire Excerpts

Tuesday 12th July 2016 Westminster Hall

[Mr Gyimah]

That is an important and relevant question. We want the childcare sector to be sustainable and we want providers to be able to deliver this offer. That is why in November we published the most comprehensive review of the cost of childcare ever. In order for the Government—we will become the biggest buyer of childcare in the UK—to set a price for the sector, it made sense for us to work out what the unit cost of providing childcare was and set a price that allows providers to deal with increased cost pressures such as the national living wage, which the hon. Lady mentioned, and, given that 80% of the sector is in private and voluntary settings, to enable the sector to make a profit. That was the purpose of the review, which was described by the National Audit Office as “thorough and wide-ranging.” Those are not the Department’s words, so I hope she is reassured that the detailed work that underpins how we will decide the funding rate for providers is there.

That is what underpinned the spending review settlement. The Government’s commitment of an additional £300 million a year to increase the national average funding rates paid for the free entitlement was based on that research. We are also committing £50 million of capital funding to create an additional 4,000 early years places. More money is going into the system than ever before, but we need to ensure that it is distributed fairly. That is what we saw in York. The issue is not just the quantum of money. Because the funding formula is based on local authorities and history, we have a situation where some local authorities are getting £9 an hour per child and others are getting something like £3.50 a child. There is therefore no point in increasing the funding pot without reforming how the money is distributed to local authorities and, in turn, how it goes from local authorities to providers.

[Thangam Debbonaire (Bristol West) (Lab)]

I am grateful to my hon. Friend the Member for Bristol South (Karin Smyth) for securing this important debate. The Minister has made several references to the need to be sure about such and such, and my hon. Friend mentioned that the full roll-out will take place soon after the pilot, so will the Minister comment on how lessons will be learnt in time for the full roll-out?

[Mr Gyimah]

What I can say firmly is that the Government will bring about funding reform imminently to create a system that is transparent to local authorities and fair to all early years providers. Part of the package introducing the 30 hours will be wholesale reform of early years funding. That was mentioned in the spending review and the autumn statement, and that reform is imminent. We will consult on that to seek views on our proposals from across the early years sector. We already listen to the sector in a number of other ways to ensure the funding works. Our red tape challenge is looking at bureaucracy and barriers. We have consulted on ensuring that providers are paid on time, which has been raised specifically by childminders in many areas, and on making local authority contracts with providers more consistent across different parts of the country.

We are looking at the local authority role in building on the success of the existing 15-hour entitlement. Rolling out that manifesto commitment is an opportunity to improve the way the system works on the ground. We received over 1,300 responses to our recent consultation on key elements of the operation and delivery of the extended 30-hour free entitlement from a wide range of childcare providers, local authorities and parents. Crucially, those views will help to inform how the 30-hour entitlement will be delivered at local level. We will publish our response to the consultation in the autumn ahead of affirmative debates in the House and the other place on the regulations of the Childcare Act 2016.

I hope I can assure the House first that a record amount of funding is going into the sector. Secondly, in terms of how that funding is distributed, we are looking at wholesale reform and will be publishing our intentions, on which we will be consulting the sector, imminently. Thirdly, we are looking to reform how local authorities work with providers and will consult on that as well. Much of the disquiet around the 30-hour commitment and its implementation is from a number of people who are assuming that we will be following through with the system as it is, but we are going to reform the entire system to underpin the fact that, if the Government are going to be the biggest buyer of childcare, the old system will not work. That is because it was based on just 15 hours a week, which was a limited offer. If we are to move to 30 hours a week, we need to ensure the system we are operating in is fit for purpose.

The hon. Member for Bristol South also mentioned the high cost of childcare. The Family and Childcare Trust is the guru when it comes to childcare costs. I look forward to its childcare costs report with a degree of trepidation every year because I know I will have to tour the TV studios if the report says the cost of childcare is getting out of control. The most recent report showed that childcare costs, which had risen for the best part of a decade, are stabilising and only rose in line with inflation in 2015.

The principle here, and the reason why the Government are introducing the 30-hour commitment, is precisely to help parents with the cost of childcare, but the available support to parents does not only come in the form of the 30 hours. We will be introducing other childcare measures such as tax-free childcare, which will give parents 20% off the cost of childcare up to £10,000. If they spend £10,000 they will get £2,000 off the cost of childcare, so a parent buying in excess of 30 hours of childcare will get 30 hours free and 20% off for anything over those 30 hours—obviously, that is for three and four-year-olds. Other parents on the lower end of the income scale will get additional support through universal credit.

I hope the hon. Lady will appreciate that a substantial amount of support goes to parents for childcare, but she is right that we need to make it simple for parents. The issue is that there are multiple areas of support for childcare that are parented by different Government Departments and there is a need to stitch those together. That is what the cross-governmental childcare taskforce is looking at, so that parents do not have to go to three or four different places to try to figure out which childcare offer works best for them. There will be one portal and one port of call from which they will be able to access childcare.

The issue of cross-subsidisation was also mentioned and it is particularly important from the provider perspective. A lot of providers have been content with the free 15 hours almost as a lead generation aspect of their business, so parents get 15 hours free and then have to buy additional hours for which the providers can charge a lot more. One of the things the funding reform will specifically look at is to price this in such a way that there is every incentive for providers to actually offer parents free hours, rather than thinking that they will opt out of it. The truth of the matter is that providers do not have to offer that, but parents will be looking around for providers that can. The Government have to set a price that brings the buyers and sellers in that market together and the cost of childcare review gives us a strong basis from which we can and, I am sure, will, get that right when the funding review is published. It is an issue that we are alive to.

Another point is that, with so much subsidy going into the sector—