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In the News

UK Economy - Calls for the UK Government to increase funding for free childcare

Geoff Riley

11th February 2023

How about this for a synoptic exam question? Assess the possible microeconomic and macroeconomic effects of the UK government increasing spending to fund subsidies for free childcare for infants.

This Guardian article highlights the fact that the cost of UK childcare is a factor that has stopped some parents rejoining the labour force. Certainly childcare costs are high, and the CBI has identified that there are 1.7 million adults who are economically inactive and looking after their families or at home.

That's out of a total number of 9 million people of working age who are economically inactive, so anything that can help get some of these people back into the workforce would help overcome ongoing labour shortages, and, by definition, supply-side problems.

Some of the economic arguments for and against the UK government funding free childcare for infants are as follows:

Arguments in favour of government funding for free childcare:

  1. Increased labour force participation: By providing free childcare, the government can encourage more parents, particularly mothers, to enter the labour force, which would boost the supply-side of economy by increasing the size of the active workforce.
  2. Improved child development: Investing in early childhood education and care has been shown to have positive effects on children's cognitive and social development, which can lead to long-term benefits for the economy and society including higher productivity and more innovation.
  3. Improved equality: Providing free childcare can reduce the cost of early childhood education and care for low-income families, making it more affordable and - over time - reducing income inequality.
  4. Lifting long run aggregate supply: By increasing labour force participation and improving child development, free childcare can lead to higher trend economic growth, which would benefit the economy as a whole and raise per capita incomes.

Arguments against government funding for free childcare:

  1. Cost: Providing free childcare would require a large investment from the government, which could be difficult to finance in the current economic climate, particularly if it would have to be funded through increased taxes or cuts to other government programmes.
  2. Inefficient allocation of resources: Critics argue that the government should not be involved in the provision of early childhood education and care, as this is better left to the private sector. They argue that government funding for free childcare could lead to an inefficient allocation of resources and that the money would be better spent on other programmes.
  3. Crowding out of the private sector: Some critics argue that by providing free childcare, the government could crowd out private providers, reducing the number of private childcare providers and making it more difficult for parents to access private childcare services.
  4. Reduced quality of care: There is a concern that free childcare services might not be of the same quality as private childcare services and that this could lead to negative effects on children's development and well-being.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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