Reform childcare system to unlock 10 per cent GDP growth by 2025, think tank says

A think tank has called on the government to reform its “disproportionate and illogical” childcare policies, citing OECD data that it could boost GDP growth by up to 10 per cent by 2025

In a new report published today, the Adam Smith Institute said the UK’s childcare system is holding back the UK’s growth because of the costs imposed on parents by the low childcare ratio. 

The childcare ratio measures how many children each childcare worker looks after. Currently it is one member of staff to four children. 

The UK’s 1:4 ratio is the “most perverse in Europe”, the Adam Smith Institute said, pointing out that Denmark, Germany, and Sweden have no mandatory ratio.

Citing OECD data, the Adam Smith Institute said that matching workforce participation between women and men through reform of child care obligations could see GDP grow by up to ten per cent by 2025. 

Head of research at the Adam Smith Institute Daniel Pryor said: “If the government adopts a more sensible approach to childcare ratios and funding, according to the Treasury’s own calculations, they could boost GDP by up to 10 per cent over the medium term, at no expense to quality of care or early-years education.”

Helen Hayes, shadow children and early years minister, agreed that a “broken childcare system” was holding the economy back. 

However, Hayes disagreed with the proposed policy, arguing that it risks reducing ““the quality and safety of care with no guarantee that prices would come down.” 

“This is not the answer parents and providers want or need,” she continued. 

The government has been consulting on changing staff child ratios to 1:5 to give “greater autonomy and flexibility” to parents. 

A government spokesperson said: “We have spent more than £20bn over the past five years to support families with the cost of childcare. This government has also doubled the entitlement for working parents of 3 and 4 year olds to 30 hours and introduced 15 free hours a week for disadvantaged 2-year-olds.”

The recommendation came in a report detailing policies to help often “forgotten” medium-sized businesses to grow. 

Medium-sized companies do not benefit from tax schemes supporting small businesses, nor have the weight to lobby the government that large businesses do. 

“Support programmes for medium-sized businesses rapidly taper off as they grow…It is therefore unsurprising that so few British scale ups succeed,” the report argued.

The report suggested that scaling up medium businesses is another method to boost the UK’s growth prospects.

The report follows calls from the Federation of Small Businesses and the Confederation of British Industry that improving childcare will help squeezed parents back into work. The CBI said the UK needs a “childcare revolution”.