SWBG blog

Is investing in childcare worth it? A summary

The Scottish Women’s Budget Group (SWBG) is hosting a series of events focusing on the need and rationales for further investment in childcare. Our first two events examined issues of affordability and lack of flexibility in childcare provision in Scotland. The third webinar in this series, “Is investing in childcare worth it?”, delved into how investing in childcare is crucial to supporting the creation of a more inclusive and prosperous economy, as well as child development.

Childcare as a solution to gender inequality and fiscal pressures

Our first speaker, Scherie Nicol, Policy Analyst at the Organisation for Economic Co-operation and Development (OECD), discussed the work that her organisation has done to reduce countries’ fiscal costs, and explained the importance of using gender budgeting to close “gender gaps” as part of this. But what are gender gaps? Essentially, these are any differences between women and men’s levels of participation, rights, access, pay, etc., in any given area. For example, despite more women entering the labour market, men are more likely to be in work than women in every single OECD country and that’s despite women having higher educational outcomes. As a result, the population as a whole is not achieving its full potential in the labour market, which has an impact on the overall functioning of the economy across the OECD.

Scherie stressed that projecting forward over the next five years, if OECD countries closed the remaining gender gaps, the result could see an increase on average real GDP per capita of 9.2%. In the context of ageing populations, closing gender gaps can translate into fiscal gains for countries at a time of growing economic pressures.

But what can be done to reduce the employment gap? Women face multiple barriers and inequalities, so closing any gender gaps ultimately requires working in a holistic way to achieve gender equality, and for this to translate into fiscal gains. In relation to this, she pointed out that gender budgeting is one of the key policy tools at governments’ disposal to achieve their strategic objectives related to gender equality, and one that could help increase the effectiveness of the budget.

Canada is a prime example of this. In 2018, the country introduced a gender results framework designed to track how it performs on gender equality. When each new budget proposal is prepared, government departments need to carry out a gender impact assessment which involves:

• Assessing the impact of proposals on the population at large, and certain groups in particular.
• Being responsive, for example, by identifying barriers to gender equality and seeking to remove them, while flagging how each measure is going to drive progress in relation to each of the areas contained within the country’s gender results framework.

All the budget measures flagged as having the potential to improve gender equality are placed in a ‘map’, which is then analysed by the department of finance as well as the Minister of Finance and the Prime Minister during the budget process.

As a result of this process, Canada has taken forward a brand-new policy in relation to affordable childcare where the cost of childcare across every province will reduce to $10 a day by 2025. This is a concrete outcome of using gender budgeting as a tool for closing gender gaps and suggests childcare provision can be the solution to some key current economic problems, such as closing the fiscal costs of gender inequality.

Tangible results: lessons from Vienna’s kindergarten model

While Scherie’s presentation focused on the ‘process’ and rationale that led Canada to investing in childcare, our second speaker, Peter Huber, Senior Researcher at the Austrian Institute of Economic Research, presented the results of a study on gender budgeting commissioned by the city of Vienna. This study was meant to evaluate a range of headline measures implemented in the city, including its free kindergarten model.  

Peter explained that before the free model for kindergarten was introduced in 2009, there was an acute problem with a lack of places being available, and the political debate centered around the impact of this on the city’s increasing ethnic and social divides. A new kindergarten model was envisioned to tackle this issue.

On 1^st September 2009, the council published its financial support package for childcare facilities. This support was dependent on the child’s age and ranged from €60 to €1,230 per child per month. Under the new scheme childcare facilities received:

• Fixed support for all children in Viennese kindergartens of between €60 and €240 per child;
• A care support payment for children with their main residence in Vienna (€137 - €226 per child);
• An administrative grant (per group) of between €500 - €1,500.

As the goal was to find new providers, this financial support particularly targeted the private and non-for-profit sectors. To avoid neighboring federal states taking advantage of the policy, there was an additional bonus for children who were residents in the city. The budget developed from the years 2009 and 2010, and the programme was sizeable: €1,250 million, which in the long-term represented 0.3% of the Vienna’s GDP.

The study looked at the impact of the kindergarten model on women’s labour supply, particularly women between 20-29 years of age. The study compared the participation rate in Vienna pre-reform with that in other provinces of Austria who did not introduce any changes, and the participation rate post reform. The results showed:

• An increase in women’s participation rate of 1.5%;
• An increase in women’s employment rate of 1.2%;
• An increase in women’s hours worked: 0.7 hours per woman;
• A reduction in women in overqualified employment of 0.8%; and
• Higher effects among:
  • Single mothers (substantially);
  • Women with children under 3 (moderately).

Regarding the macroeconomic effects of this expenditure, the study also captured the effects on employment and gross value added (GVA). Figures on return of investment were not part of the original study as the Austrian system of transfers within the state implies that all revenues are accrued by the central state and the regional government only profits marginally from any changes in the economy. However, upon our request, Peter and his team very kindly checked this ahead of the webinar. Based on investment of €360 million, there is a return from both taxes and social security contributions of approximately €302-320 million. This means that if the state is considered a unit, the policy was 80% self-financing. However, Austria is a federal system, which means that Vienna only gets €20 million of these revenues. Therefore, for the city, this was not a self-financed programme.

Peter’s presentation further attested to the efficacy of gender budgeting to increase gender equality and provided insights on the economic benefits of investing in childcare. Yet, Peter acknowledged some of the limitations of the study, including a lack of information on children’s educational outcomes. This question was, however, discussed as part of the webinar’s last presentation, as explored below.

Economic gains in the long term: investing in children

Our final speaker, Jonathan Broadbery, Director of Policy and Communications at NDNA Scotland, brought the focus back on to the UK and Scottish context, drawing attention to the potential of investing in childcare for tackling poverty in the long-term.

Jonathan started off by asking the question “is childcare expensive?” While OECD figures usually show that the UK has one of the most expensive childcare systems in proportion to average earnings, comparisons with other countries shine a light on the issue.In countries such as Germany, France or Sweden, increasing public investment sees a decrease in the cost of childcare to families, while in the UK and New Zealand, a relatively low level of investment from governments leads to a higher proportion of income being spent by parents on childcare. Therefore, the question is not whether childcare is expensive, but what happens when there is investment (or lack thereof) in this area.  

Jonathan highlighted why investing in the first five years of a child’s life is crucial for the child’s development, and the impact that this has in the long term on the child and society. Research by the London School of Economics found that the lack of early years support costs England 16 million pound every year, and 40% of the disadvantage gap at age 16 has already emerged at age 5. This is well illustrated by Professor James Heckman whose research demonstrates that if we don’t get it right in early years, closing the inequalities gap becomes much harder (and costly). Jonathan argued that, with Scotland’s First Minister, John Swinney, identifying the eradication of child poverty as his “first and foremost” priority, budgets should align with this commitment.

Yet not all interventions need to be costly. Evidence from NDNA’s Maths Champion programme, which is focused on embedding mathematics into play and activities in Early Years settings, showed that within the space of 9 months, children in this low-cost but high-impact programme were able to make an additional three-months’ progress in their learning.

However, when governments do not get it right, it becomes increasingly difficult to achieve the full benefits of investing in early years. A recent survey by NDNA showed that 70% of providers expect to operate at a loss or merely break-even due to ELC funding not covering all costs for the delivery of the policy. Johnathan suggested that the adoption of the UNCRC (Incorporation) (Scotland) Act 2024 this year may become a crucial tool to correct some of the pitfalls in ELC implementation, and a mechanism to scrutinise the impact of policymakers’ decisions on children and children’s policies.

Conclusions

This webinar demonstrated that framing ELC as a cost to the economy misses the links between ELC investment and the fiscal and wider gains associated with greater gender equality and children’s development. Scotland has, until very recently, had the most generous ELC offer in the UK, yet the webinar showed that overall, the level of investment in childcare in the UK falls short compared to other countries, with parents paying the price for this shortfall. In times of tightening budgets, managing and planning for the delivery of public services is crucial. However, there is a need to start examining the resources required to improve and expand the current publicly-funded offer if we want to reap the economic benefits.

What more can we learn from other countries’ approach to childcare? Find out in our next (and last) webinar of this series!

This webinar series is supported by Oxfam Scotland