Childcare versus the accountants

A telling case study in the fateful dilemmas that will confront the next Labour government

March 06, 2023
Childcare, an investment in the true sense? Image: Paul Carter / Alamy Stock Photo
Childcare, an investment in the true sense? Image: Paul Carter / Alamy Stock Photo

At one level the case for ramping up state support for childcare is unarguable. As a Centre for Progressive Policy (CPP) survey details today, about a million mothers have been blocked from applying for a different job because of the problem of looking after the kids, with a similar number missing out on taking on a post that promised a pay rise, and half as many again wishing they could increase their hours but being unable to do so.

The precise calculations involved in translating this into lost economic output are inevitably debatable, turning on assumptions about, for example, how many of those desired extra hours would actually be available. On the other hand, the CPP has surveyed mothers alone. Factoring in fathers could only boost the effect, and—over time—the opportunities associated with an uninterrupted career can be vast and enduring, potentially boosting earnings for decades ahead.

So it’s hard to imagine the CPP is anything other than correct in concluding that if the UK could be nudged up from the bottom towards the top of the European childcare league, the economic benefits would run to tens of billions of pounds. Moreover, a large proportion of those gains would find their way back to the Exchequer in tax receipts, helping to cover—and perhaps more than covering—the cost.

Addressing a parliamentary opposition which is now majority female, and funded by the wealthy former minister and peer David Sainsbury, who is identified with Labour’s resurgent centrist wing, the CPP should be pushing at an open door. Indeed, the party is reportedly mulling a childcare “offer. The New Labour precedent—which included tax credits and Sure Start centres—is also pretty happy in this field

But that was then, and I fear things could be different today. The pressures on existing public services like the NHS are more intense than in the 1990s: fixing what is palpably broken might have to take political priority over advancing the welfare state into new frontiers. All the more so with many assuming that defence spending—which in the 1990s could be squeezed with little controversy—should instead increase. Moreover, post-Covid and post-financial crisis, the public debt burden is more than twice as high as it was when Tony Blair arrived in Downing Street.

In this context, it’s all too easy to imagine smart-sounding “spend to save” proposals on childcare coming unstuck in the Whitehall of a Keir Starmer government. Treasury officials will do what they always do: cast doubt on how many of the claimed returns can truly be banked on and insist it’s better to make solid savings today than gamble on extra revenue of some unknowable quantity somewhere down the road. The Treasury generally prevails too, save in rare circumstances such as the pandemic and the first days of the financial crisis where there’s a clear message from the top that the bean-counters don’t have a veto. Starmer’s current “sound money” pitch sends the opposite message. 

Spotting this problem coming, the CPP wants to reclassify childcare as “infrastructure”, so that the increased subsidies it seeks can be reclassified as “investment”, and thereby reconciled with fiscal edicts which sanction borrowing for that purpose but not day-to-day spending. It’s a perfectly defensible wheeze, although what it really highlights is just how arbitrary are the accounting conventions on which the fate of the next Labour government could turn.

What’s needed is a more fundamental challenge to accountancy-first governance

In theory, investments are simply outlays that yield benefits in future years; in practice, they are defined with reference to stock, plant, intellectual or physical capital—the hallmarks of investment in the private sector. A new school passes the test, but teachers wages don’t. Yet if there is an argument for classing childcare as investment spending, there is an even stronger case for classing the whole education budget the same way.

After all, while childcare primarily aims at facilitating more earning today, good schooling can plausibly be spun as being about boosting “human capital” and earning capacity for the future. After the education budget tumbled from more than 5 per cent to barely 4 per cent of national income over the 2010s, this argument, too, might be worth trying.

Ultimately, though, this does not feel like a moment for accounting tricks: what’s needed is a more fundamental challenge to accountancy-first governance. Recall how attempts to keep public investments “off the books” led the last Labour government to embrace the private finance initiative (PFI), which proved costly and inflexible. Compared to direct public finance for the new roads and hospitals, there was no serious advantage for the underlying solvency of the state.

Yes, there are real pressures on the public purse, and the next government will inescapably face some uncomfortable choices. But a sense of perspective is also required. The public debt burden remains lower than it has been for most of the last 250 years and is the second lowest in the G7. Labour should stand for the one fiscal rule that matters. Namely, spending up to—and no further than—the point where the (broadly defined) marginal benefit is matched by the (broadly defined) marginal cost. Shrewd expenditure on both childcare and education could easily pass this test.

As it is, the Labour mood is one in which respectability trumps radicalism. A brief period in the mid-1970s when Labour spent with abandon—before paying the price price in inflation, strikes, spending cuts and ultimately at the ballot box—inspired Tony Blair’s fixation on persuading the country there would be “no return to the 1970s”. As today’s Labour high command draws a determined line under the era of the decidedly 1970s figure of Jeremy Corbyn, it is playing very similar tunes.  

But in a world where battered public services and the green transition are crying out for resources, it is worth looking back to a couple of earlier unhappy chapters of Labour history, in which an obsession with financial respectability proved catastrophic.

In 1931, pursuit of “sound money” led Ramsay MacDonald to embrace retrenchments including cuts to unemployment benefit that his party couldn’t stomach. It split, lost around 80 per cent of its seats in the party’s worst-ever defeat—and left a Tory-dominated National Government to embrace devaluation and easy money. That was a step that Labour had been too timid to take, but one which soon powered an economic recovery.

Arriving in office in 1964, Harold Wilson staked his reputation on protecting the soundness of sterling, which effectively gutted his National Plan for growth before finally, in 1967, being forced to devalue the pound anyway—and with it his own political stock.

In both cases, taking a bolder approach at an earlier stage would have been smarter politics. It might also have secured at least a chance for real progressive change, too. As Maynard Keynes wrote: “Once we allow ourselves to be disobedient to the test of an accountant’s profit, we have begun to change our civilization.” For hopes of childcare reform—and much else besides—that thought is worth pausing on.