From the TUC

A Quebecer’s perspective on Osborne’s childcare initiative

21 Mar 2013, by in Economics

One of the high points of my work placement at the TUC has been being afforded the exciting opportunity of watching yesterday’s response to the budget.

As a Canadian, what surprised me as I watched the televised budget speech, and then pored over the pdf, the online discussion and media about George Osborne’s big announcement of a tax-free scheme to provide tax credits for working parents to offset childcare costs –in 2015 – is not the announcement itself, but the lack of substance in the UK in dealing with the massive cost of childcare in this country.

Let’s be clear: the announcement is something for some people (20% of cost, up to £1,200 per child – but this will probably only benefit better off households), but while something is better than nothing, something is still not enough.

As is common knowledge for anyone with kids – and the OECD data points out – the UK has the distinction of having some of the highest net childcare costs in the world. Comparing the simple sticker cost of childcare across jurisdictions is a bit of an exercise in comparing apples and oranges, as in many jurisdictions governments offer tax credits to offset high costs. More instructive is therefore to look at net costs in relation to wages.

Consider a middle income British family. Assuming this dual salaried family – one which is earning 167% of the average wage – back in 2004, we can see how bad the situation is for this family:

Net childcare costs graph 

If you can make out from the graphic, our British family spends a whopping 43% of the average wage on childcare costs. In fairness to Britain, it’s worthwhile mentioning, it seems to be poor throughout the English-speaking world, as we also see the right side of the table being occupied by the US, Ireland and Canada.

Yet in Canada, childcare (along with most social programs) is a provincial responsibility – meaning that the childcare supports available to Canadians are different between provinces. The province of Quebec stands out for the uniqueness of its response to the cost of childcare: a universal childcare system.

Launched in 1997, the system offers universal childcare for all children aged up to five years of age (children begin all-day primary school at age five). Initially, the scheme cost parents five dollars per day (all figures are in Canadian dollars, 1 Canadian dollar = £0.64 GBP), yet since 2004 this fee has been raised to seven dollars per day, with the rest of the cost footed by the provincial government. To compare against wages, the minimum wage in the province currently stands at $9.90 per hour. As of March 2011, there were 215,000 places in the system throughout the province. Families receiving social assistance payments (more popularly known as welfare) may access the program for free for 2½ days a week and (in certain conditions) for longer.

Such a program is not cheap to operate: in fiscal 2011-2012, Quebec spent $2.215 Billion Canadian dollars (roughly £1.43 Billion) to run the program, equivalent to roughly 0.7% of Quebec’s GDP.

Since introduction, the program has had two major impacts. Firstly, it has meant more women have entered the labour force than were previously participating. Pierre Fortin and his colleagues from the University of Sherbrooke estimate, in a recent working paper, that in 2008 there were 70,000 more mothers in the Labour force than would have been without the program. Due to this increased participation, they calculate that the province’s GDP is $5.1 Billion larger than it would have been otherwise. They also find that since the program’s introduction, the percentage of children fitting the age of admissibility in regulated childcare in Quebec has shot up from 18% to 53%.

The second impact is that the program pays for itself. Fortin’s group concludes that for every dollar the provincial government spends on the program, it recoups $1.04, while the Federal government earns 43 cents. Canada, at the Federal level, has no national childcare strategy – which means Canadians in other provinces don’t benefit from the above mentioned benefits of a childcare system.

Sometimes it takes an outsider looking in to notice something, so if I could recommend an idea for Britain to think about, it is that while universal childcare at a low cost to parents is an expensive proposition to set up, if we can learn something from Quebec it is that over the long-run it pays for itself.   Naturally, the government would probably argue that while such a system would be nice, it simply cannot afford one given Britain’s budgetary constraints. Quebec’s experiment seems to contradict this point.