"Subsidizing" childcare

It's fitting that Nick Clegg should have announced an increase in the state subsidy for childcare, because the policy is a sanctimonious front for something that is inegalitarian and economically illiterate.

Let's start from the fact that this subsidy must be paid for by other tax-payers. It's therefore not just a subsidy to parents, but a tax on singletons.

This is inegalitarian not just because it means that a single person on the minimum wage is subsidizing the lifestyle choice of couples on six-figure incomes. It's inegalitarian in two other ways.

First, the costs of a family don't rise proportionately with household numbers. The cliche "two can live as cheaply as one" isn't literally true, but it is partly so. This is captured by the notion of equivalence scales, which adjust household incomes for family size. Such scales tell us that a household with two adults and a young child needs an income of 1.8 times that of a singleton. But this in turn means that if two people in a couple have similar incomes - and given assortative mating many do - then the couple is better off than the singleton. Subsidizing childcare is thus regressive in many cases.

Secondly, there's reasonable evidence that marriage improves people's mental and physical well-being. This means a tax on singletons to help couples is welfare-regressive; it gives to those who have.

Why, then, do it? Simple. Couples with children have political power; politicians defer to Mumsnet, and yet many people sneer at "spinsters with cats". All we're seeing here is another example of politicians trying to give money to the powerful. Clegg's claim that this is about a "fairer society" is mere blather.

The policy is also economically illterate because it ignores two important economic ideas: fungibility and incidence.

A childcare subsidy is fungible; if parents are spending less on childcare, they've more money for something else. A lot of child benefit is spent on alcohol. The same might well be true of the childcare subsidy.

There's one sense, though, in which this isn't entirely true. Not all of the subsidy will benefit parents. This is where the concept of incidence comes in. Let's say the policy works as some hope it will, and encourages mothers (or dads) to look for work. Two things will then happen: the extra labour supply will bid down wages; and insofar as parents find work there'll be extra demand for childcare, which will tend to bid up prices of it.

Insofar as this is the case, the childcare subsidy doesn't just benefit parents, but employers and nurseries.   

There is, though, another sense in which the policy is economically illiterate. The opportunity cost of subsidizing childcare is that money could be spent on genuinely giving children the best possible start in life, by more investment in early years education, especially for kids from poor homes. Clegg has foregone this opportunity, and would rather give yummy mummies another bottle of Chardonnay.

Comments

[richardarnatt]

Thought experiment time.

Suppose that you were the leader of a party whose voters consist of the elderly and middle-class families. Both groups are literally or figuratively dying out, and the birth rate among the latter is not sufficient to produce a burgeoning generation of future voters.

Which policies would you adopt to deal with the above?

[Duncan]

I like the way that this essentially treats the 'childcare' money as one bucket of cash to be shared between all cases where childcare is involved; that the 'singletons' are fighting it out with the couples.

That a wrong turn has been taken with child benefits does not necessarily mean that this policy is a bad one. It simply means that this particular government has it's priorities wrong. Or, rather, it's priorities are bang on based on the way it defines it's policies via it's desire to push a moral case for couples.

That aside, there are other countries that see that there is a benefit to heavily subsidised childcare, regardless of the parent's status; I'm assuming that you also believe these countries to have it all wrong as well?

[pablopatito]

Economically illiterate? Am I right in guessing that the economics behind it is based on an assumption that children are a public good? Or to be blunter, that middle-class children with two working parents are a public good?

[BenSix]

I'm sceptical of the worth of and intentions behind this policy - it might be an attempt to get people to work for ever longer hours - but your point about marriage is arguable. If it has such benefits, it could be worthwhile if people are more able to recognise and more capable of experiencing them. Gains in, say, health are hard to connect to one's life but everyone sees money in their wallets.

(I have no kids, by the way. I'm not out for wine.)

[Paul]

Good post as ever, Chris, but you need to be careful about your distinction between "childcare" and "early years education", because they are often the same thing.

In well run daycare facilities (like the one I run as a social enterprise) all "care" provides planned added educational value, through play and early literacy/numeracy, whether or not it is funded through the (free to parents) Nursery Education Grant) or through fees. And the best childminders offer some of the same.

Where you're right about the opportunity costs is where nannying/bog standard childminding and some of the bigger, crapper childcare firms take funding away from early years education via the mechanisms you refer to, now to be expanded.

All in all, though, your arguments here should be the basis of Labour's argument for it 25 hours per week early years education policy.

[Neil Wilson]

The problem with this argument is that it also applies to school.

The job of work of looking after a child is created when the child is born, and that job has to be done by somebody from that point forward.

The reason that singletons need to chip in is because they will rely on the output of other people's children in the future should they remain childless. There is no right to output made by somebody else.

Plus of course there is no evidence that it is 'paid for' by singletons but rather by dynamic expansion of a depressed economy.

Children are our future and it is about time that the job of looking after them was remunerated adequately - whoever is doing that job. It makes no sense that the state pays if we swap children, but not if we keep our own.

It is time to realise that we need a wraparound care system for children - if we wish to continue with requiring that 'everybody works until they drop'.

[Hamed Bastan-Hagh]

The issue of incidence is a big one. In a decent suburb of Manchester we pay £45/day for my son's nursery. If we get some sort of additional tax break towards childcare then I'm prepared to bet that some or all of it will be swallowed up in short order by "unavoidable price rises due to rising costs of business".

The point about Mumsnet is fair but worth mentioning also that a huge number of MPs will be beneficiaries of this policy. Not suggesting this is a pure money grab but more so that it is salient to them in a way that the problems of poor people aren't.

[Boffy]

The policy is simply designed to correct the mistake the coalition made (from their perspective)in proposing the removal of Child Tax Credit from better off families. They never expected they would have to implement that, but their economically illiterate austerity programme tanked the economy, and made it necessary to implement it.

All of these subsidies and benefits are a subsidy from workers to capital. They should all be scrapped, and a Minimum Wage introduced at a level sufficient to provide enough to ensure the reproduction of labour-power. That would need to be supplemented by a decent level of unemployment benefit, preferably paid out from a worker owned and controlled social insurance scheme, as workers were developing via their Friendly Societies in the 19th Century.

Preferably, workers need their own monopoly agency supplier of labour-power, may be One Big Union, or something similar to Robert Owen's Grand Consolidated Trade Union, to counteract the monopoly ownership of capital.

That would also mean that the kind of principles that Marx outlined in the Critique of the Gotha Programme would also apply. In other words, if some people decided to have larger families than the average, they would have to fund it themselves from their wages, by working more, or foregoing something else, rather than expecting other workers with smaller families to fund their activity.

[theOnlySanePersonOnPlanetEarth]

I agree with this article.

But it is also about social engineering, or could be viewed that way. The nanny state plays nanny, almost literally!

[Yet another Chris]

I don't believe in subsidising anything. Because? Well, the business model always changes to suck up the subsidy and more. Pensions, for example. Providers take the subsidy that forty per cent income tax payers get into account and mop it up. They even suck up some of the twenty per cent. Electric cars. The five thousand GBP subsidy is sucked up. I could go on. You can be absolutely certain that child care providers will do the same.

That said, we, whether parents or singletons need children to secure our future. Who will wipe your bum when you're old, otherwise?

This subsidy is not, though, the answer to the real problem - over-regulation of child care above and beyond virtually any other country in the world. Less regulation is what's needed.

[Dave C]

Everyone gets exactly one childhood, therefore everyone benefits equally from spending on children (intergenerational differences notwithstanding).

Where do you get the idea that some people benefit more than others based on the number of sprogs they have?

[Luis Enrique]

we have a pension system in which pensions are paid by taxes of the presently young. So does Neil Wilson have a point that non-wealthy single people are free riding on the costs and effort others incur having children?

[Bialik]

Demonstrate assortative mating using fungible models. Write on one side of the paper only.

[pablopatito]

Luis: "we have a pension system in which pensions are paid by taxes of the presently young."

Other Chris: "Who will wipe your bum when you're old, otherwise?"

These are perhaps arguments in favour of pro-immigration policies rather than pro-creation policies? The Tories certainly can't say "We have too many people here!" and "We need more people!" in the same sentence.

[Jonathan]

To which you could add there are many people who are caring for an elderly or sick relative, which also inhibits their ability to work. This is somehow less worthy of support from the tax payer.