New Clause 5 - Review of impact on childcare costs

Childcare Payments Bill – in a Public Bill Committee at 10:30 am on 28th October 2014.

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‘(1) The Chancellor of the Exchequer must undertake a review of the projected impact of this Act on childcare costs.

(2) The review must make reference to—

(a) trends in the cost of childcare for parents in work;

(b) the impact of other changes to the tax and benefits system introduced during this Parliament on the cost of childcare relative to the projected impact of this Act; and

(c) a comparative analysis of the projected impact of this Act on childcare costs relative to alternative prospective changes to the tax or benefits system to assist with the costs of childcare.

(3) The Chancellor of the Exchequer must publish the report of the review within three months of the passing of this Act.”—(Catherine McKinnell.)

Brought up, and read the First time.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I beg to move, That the clause be read a Second time.

I am grateful for the opportunity to consider this Opposition new clause, which, as is customary with new clauses, is being taken at the end of our proceedings on the Bill. I am sure you will agree, Mrs Main, that we have dealt very efficiently with the Bill. Although the Opposition have raised a number of clarificatory queries about the mechanics of how it will operate, we have no issue with the Government administering their support in the way that has been proposed.

We do, however, have grave concerns about a much more substantive issue, which the Bill does not address. New clause 5 calls for a review of the lack of help the Government have provided over the past four years for parents struggling with child care costs, at the same time as they have cut in-work support for families, such as tax credits and benefits.

We therefore call on the Government to review the trends in the cost of child care for working parents not only as a result of the Bill, but in the context of the current climate and of the last four years. We want them to review the impact of other changes to the tax and benefits system over the past four years; how those things have affected the affordability of child care for hard-pressed parents; and, following on from that, whether the top-up payments provided for in the Bill will make a dent in the lack of support for working parents with child care costs.

I want to focus on the first of those issues—the worrying trend of soaring child care costs over this Parliament. It is worth reflecting on the context of this debate. In its 2010 manifesto, the Conservative party promised

“to make Britain the most family-friendly country in Europe.”

It said:

“We will help families with all the pressures they face: the lack of time, money worries, the impact of work, concerns about schools and crime, preventing unhealthy influences, poor housing.”

Of course, we cannot forget the promises of our Liberal Democrat colleagues in the heady days of the 2010 general election. In their manifesto, they claimed:

Liberal Democrats believe every family should get the support it needs to thrive, from help with childcare through to better support for carers and elderly parents.”

They promised—this is key—

“Liberal Democrats will improve life for your family.”

That is quite a promise, but I fear it was consigned to the scrap heap their now infamous tuition fees pledge lies on.

The reality is that families face more pressures now than ever before: their living standards are being squeezed more than ever before, and, far from providing help with that, Conservative and Liberal Democrat members of this coalition Government have pulled the rug further out from under people’s feet through tax and benefit changes.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

My hon. Friend is making a good case. Does she agree that, sadly, the soaring cost of child care is adding to the squeeze on family household incomes?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Indeed. The point I am making is that, because of these changes, parents face a real child care crunch. Child care costs have spiralled, the number of child care places has fallen and the support that families in work receive from the Government has been slashed. One consequence, which we have debated at length in this Committee, is that progress on child poverty has stalled. Our concern is that, although the Bill is welcome, it goes nowhere near far enough towards making up for what parents—especially those on low and middle incomes—have lost under this Government.

The point is perhaps best illustrated by the latest “The cost of a child” report, which the Child Poverty Action Group and the Joseph Rowntree Foundation  published this summer. The report calculates the cost of what the public say every family needs to meet its basic requirements and participate in society—food, household items and child care being three of the main things. That is then contrasted with the reality of people’s incomes across earnings and Government support, to calculate the shortfall, if any. Its findings this year were extremely worrying and in many ways confirmed what many fear has been the reality—many have seen it to be the reality, as well.

The report found that the cost of bringing up a child has soared in the last year—up 8% for a couple and up 11% for a lone parent—with the incomes of families on the minimum wage falling far short of what is needed to afford just the bare minimum to bring up a child. The report has calculated that families working full time on the minimum wage are 18% short of the basic amount they need to live and raise a child. For lone parents working full time on the minimum wage, that shortfall is 13%.

The report found that child care accounts for about 45% of the cost of bringing up a child, for those working full time, before taking account of tax credits. It concludes that

“government action to help families pay for it is by far the single most important policy decision affecting the cost of a child.”

Citing the Daycare Trust survey, the report found that child care costs

“have increased by 42 per cent on average, over twice as fast as the consumer prices index (CPI).”

The report simply confirms what we already know—that parents are really facing a child care crunch. That is why we have tabled the new clause: to press the Government fully to take on, consider and act on the rising costs of child care in the last few years and to set out what can be done now to support hard-pressed parents.

We know that the Family and Childcare Trust have calculated that families are paying more on average for part-time child care than they spend on their mortgage, handing over a staggering £7,500 a year for child care for two children—around 7.4% more than the average mortgage bill. Its survey also suggests that parents are seeing part-time nursery prices rise five times faster than their pay; in my region, the north-east, prices have risen by a staggering 50%. The average bill for a part-time nursery place of 25 hours a week has gone up to £107—the highest in history—and average weekly costs for a full-time place have risen by up to £200 or even more.

All that is why we have tabled the amendment calling on the Government to set out, as soon as possible, action that they could take now—immediately, not in 12 months’ time—to help parents manage their struggle with soaring child care costs. Although the then Economic Secretary to the Treasury dismissed it as unnecessary, we feel it is important to understand fully the added pressure of rising child care costs on family finances, and the new clause therefore calls on the Government to undertake the review and to recognise these concerns once again.

Parents are struggling with not just child care prices, but a chronic shortage of places. Ofsted figures show that there are now more than 35,000 fewer child care  places across the country. In my region alone, we have lost 5,000 places, and even the coalition’s flagship offer for two-year olds, which is clearly welcome and is starting this month, has floundered; the then Minister responsible for child care, the right hon. Member for South West Norfolk (Elizabeth Truss), admitted last November that 38,000 of the 20% most disadvantaged two-year-olds—38,000 out of 120,000—did not have the places that they are entitled to. Despite repeated denials, in May 2014 the then Minister updated the House on progress and admitted that 10% of the most disadvantaged two-year-olds still do not have a place.

However, perhaps most worrying of all are the changes to Sure Start, which is one of Labour’s proudest achievements in government. Sure Start seems to be in danger of disappearing, with support from Government level appearing to have been abandoned. As my hon. Friend the Member for Manchester Central revealed this summer, analysis of responses to a Labour party freedom of information request indicated that there are 628 fewer Sure Start centres since 2010—indeed, since the coalition Government took office. Not only that, but one in 10 children’s centres provides fewer services, one in six has seen a reduction in hours and one in five has fewer staff than in 2010. Those are the facts that we have managed to glean, but we know there is a much more worrying future on the horizon for Sure Start if action is not taken soon.

New clause 5 seeks to review the impact of changes to tax and benefits in this Parliament. One of parents’ concerns is that the Government’s changes to tax and benefits seem to favour the wealthy over the hard-pressed and also men over women—a crucial issue for child care. The Government have reversed the top rate of tax down from the 50p rate introduced by Labour to support deficit reduction. At the cost of £3 billion to the Exchequer, 85% of the recipients of that tax change are men.

At the same time, we have seen £15 billion-worth of cuts to measures that help support parents to stay in work and to get more hours in order to support their families. The changes, through tax credits, maternity grants, allowances and statutory maternity pay, all add up for families who we know are struggling. The cuts to tax credits alone have meant that some families have lost up to £15,060 a year, as we pointed out to the Government when the changes were introduced.

Photo of Bob Russell Bob Russell Liberal Democrat, Colchester 10:45 am, 28th October 2014

Is the hon. Lady saying that an incoming Labour Government would introduce all the measures that she is outlining, which she feels are desirable or necessary? If so, what would be the cost? Will that feature in the Opposition’s alternative Budget?

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank the hon. Gentleman for his concern about Labour’s manifesto. We have made a number of pledges for when a Labour Government are elected in 2015. We have also made it clear that we would not have made some of the changes that the Government have made. We would not have made the cut to the 50p tax rate, 85% of which goes to men.

Photo of Anne Main Anne Main Conservative, St Albans

Order. I am sure the hon. Lady is not going to go down the long list of things that she will not be doing, which has absolutely nothing to do with this debate.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Thank you, Mrs Main. I believe the concern of the hon. Member for Colchester for Labour’s economic plan post-2015 has led us down a road—[ Interruption. ] Suffice it to say that there are some very clear differences—[ Interruption. ]

Photo of Anne Main Anne Main Conservative, St Albans

Order. May we hear the hon. Lady? I am sure she has some very interesting points.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

Clearly, the facts speak for themselves. The House of Commons Library has estimated that, since 2010, families with newborns could be up to £1,725 worse off over two years—the year during pregnancy and the first year of a newborn’s life. There is also a new analysis of the households below average income statistics, which were published earlier this year and show that, under this Government, families with children have seen the biggest falls in income relative to those without children.

I point the hon. Member for Colchester to the promises made in both the Conservative and the Liberal Democrat manifestos and the reality that has been borne out—particularly for families, which is obviously the issue in relation to new clause 5 and the Government support for child care. Between 2009-10 and 2012-13, a couple with two children aged five and 14 were, on average, £2,132 a year worse off, which is in contrast to a couple with no children, who were £1,400 a year worse off. A single person with two children aged five and 14 was, on average, £1,664 a year worse off, whereas a single person with no children was £936 a year worse off.

Of course, we know that the Chancellor intends to repeat the cuts to tax credits and other support for working families if he remains in office next May. We know where ministerial priorities will lie next May: more cuts to tax credits, hitting working women, particularly those on modest incomes; and a VAT rise, which Ministers refuse to rule out, because they are promising to keep their £3 billion tax cut for the very highest earners, more than 85% of whom are men. Those are just the tax and benefit changes; they are in addition to the impact of wages falling relative to prices, which has left working people on average £1,600 a year worse off since 2010.

As new research published by the Resolution Foundation earlier this year suggested, official statistics may well have underestimated the challenge with the fall in living standards. If we take into account the wages of the self-employed, which official statistics do not, the fall in wages could be between 20% and 30% greater than we have thought. We know that these issues are particularly relevant for women and we know that child care lies at the heart of providing and ensuring support for some of the most vulnerable families.

I seem to be receiving exasperated sighs in response to my expression of concern on behalf of families up and down the country, but we know that the Government’s increase in the personal allowance, which I am surprised no Member has put forward as the solution to this issue, is far outweighed by the impact of the changes in support for working families with tax credits and benefits.

New clause 5 calls on the Government to give proper consideration to the plight that families face with child care costs, which we know will not be fully addressed by the top-up payments in the Bill. In any case, we know that for many families it is simply too little, too late.  New clause 5 calls on the Government to take action now to address some of these issues, and I commend it to the Committee.

Photo of Priti Patel Priti Patel The Exchequer Secretary

New clause 5 would require the Government to publish a review of the impact of the Bill on the cost of child care. Once again, the Opposition have proposed that that should be published within three months of Royal Assent. As I have said a number of times during our consideration, the Government have made a clear and firm commitment to review the impact of the scheme within two years of its implementation. That was set out in the impact assessment published alongside the Bill.

All Members are rightly concerned about the impact that high child care costs have on all working parents; that is not specific to a political party. We believe that the Government should support the child care sector to increase supply, which will help with the overall costs of child care. The Government are therefore making significant reforms to support the child care sector in increasing the supply of places.

Specifically on the action that the Government have taken to grow the supply of child care, I should say that we have been enabling good and outstanding childminders to access funding for early-years education places. We have legislated for the creation of childminder agencies to give parents and childminders more choice. We are actively encouraging primary schools to open for longer and are making it easier for schools to change their school day and offer out-of-school-hours facilities. We have also enabled registered child care providers to expand more easily to suitable premises. We have been enabling schools to accept automatically two-year-olds as well as three-year-olds. Forty schools across the country have been taking part in that demonstration project.

Reforming the role of education authorities to improve access to Government funding and to encourage new entrants to markets is absolutely key. The reforms are designed to ensure that an increase in the demand for child care will be matched by increased supply, rather than by increased cost.

Photo of Alex Cunningham Alex Cunningham Labour, Stockton North

The Minister is painting an optimistic picture of her expectations of the Bill. From the Opposition Benches, I wish her well and hope that her ambitions and optimism are borne out. Does she actually know how much change we will see over the next year or two? How many places does she expect to be created? Does she really expect that more people will come into the market and that we will see an expansion without a huge upwards inflation in the cost of child care?

Photo of Priti Patel Priti Patel The Exchequer Secretary

The simple answer is yes. The latest figures show that through the changes we have brought in there are already 100,000 more child care places than in 2009.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury)

If that is the case and the Minister is already convinced that the reform will produce the results that she has described, and given the uncertainties around some of the changes that we are introducing, why is she opposed to an early assessment of the effects  of the changes that have already been made and those proposed in the Bill? Why does she wish it to be left for two years?

Photo of Priti Patel Priti Patel The Exchequer Secretary 11:00 am, 28th October 2014

As we have discussed in previous debates on this Bill, we feel that the two-year assessment period for review is in the right balance. That is the right time to assess the full overall impact of the scheme in the Bill and our policy. It is much more reasonable, as we have discussed, to allow the full scheme to get up and running before examining the various factors that we will take into consideration. We have touched on those factors in debates on various clauses, but they include the roll-out of universal credit and increased supply of child care places.

On that point, we are making available grants of up to £2 million to help people set up new child care businesses. Obviously, those will come through into the system. We will also make up to 32,000 good and outstanding childminders automatically eligible for early education funding.

Photo of Lucy Powell Lucy Powell Shadow Minister (Education)

The Minister is talking about the reported increase in the number of child care places; I think she is including figures on school nurseries. Is she aware that during the same period, over the course of this Parliament, the number of children under five has increased significantly? The birth rate has risen by 500,000, and it is set to increase further in the coming years. The small measures that she has described will be dwarfed by increased demand from the birth rate alone, never mind demand as a result of increased support.

Photo of Priti Patel Priti Patel The Exchequer Secretary

I fully recognise the numbers involved, particularly those relating to the birth rate. Projections for school places also come into it, so the issue is not specific to the Bill. I do not consider the measures that the Government have announced to be small. They will boost supply significantly, and we should all welcome them.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury)

If the Minister is so convinced that the impact of the changes is already being felt, and given that the aim of the Government’s child care legislation is to get people back into work, why is she so reticent about testing the effectiveness of that policy? If the changes have the detrimental effects that people are assuming, other policies to get people off benefits and back into work could fail.

Photo of Priti Patel Priti Patel The Exchequer Secretary

We have discussed the time frame. The Bill focuses on getting families back to work, and it involves working across Departments. It sets out the right way of reporting back and reviewing the effectiveness of the scheme, working in conjunction with other Departments. It is not about reticence at all—we want to get it right and do it properly.

We understand the cost of child care. The Government are committed to helping parents with that cost, and that is what the Bill is about. In many of the previous debates, I have mentioned universal credit and the new early years premium, as well as the fact that we are mindful of costs. Specifically on the point made by the hon. Member for Manchester Central, costs have stabilised  compared with the situation under the previous Government, when costs rose exponentially, by nearly 50% between 2002 and 2010. The average cost of child care has now stabilised.

Given the Government’s commitment in the impact assessment to reviewing the scheme, and in light of the fact that we have discussed the matter in debates on previous clauses, I am sure the Committee will agree that sufficient mechanisms are already in place to keep the scheme under the amount of scrutiny that it deserves. It does deserve ongoing scrutiny, as has been said in the Committee and as we have outlined in the impact assessment. Given the other measures that the Government are taking to support the supply of child care, we are taking the necessary steps to ensure that the already high costs of child care stabilise rather than spiral further upwards. I therefore ask the hon. Member for Newcastle upon Tyne North to withdraw the new clause.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank the Minister for her response. I believe that she is sincere in her belief about the support that the Government intend to provide through the Bill. However, the Opposition remain fundamentally concerned that the Bill will not address the situation in which too many families have been left. The cumulative changes to tax and benefits over the Government’s time in office have left many families worse off, and the Bill will go nowhere near far enough to make up for the shortfall that families are facing, part of the reason for which is the cost of child care.

We believe that the Government should take the issue more seriously. My hon. Friend the Member for Stockton North has pressed them on the time frame they are using. A further two years is just too long a time for the Government to let the issue drift before taking serious action to review and, indeed, rectify the situation. We wish to press the new clause to a vote, because we believe that the review is an important issue that, at this stage, the Government are simply not taking seriously.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 6, Noes 9.

Division number 3 Decision Time — New Clause 5 - Review of impact on childcare costs

Aye: 6 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.