Budgeting. Not the most fun thing to do in life, but needs must if you want to afford basics plus a few treats. The UK budget for 2024/25 came out the other week, and it made me realise that governments, like me, will put something in a budget and when it doesn’t work you just try to not mention it again. If you ignore it, it didn’t happen right?
Now I’m talking specifically about childcare and the childcare policy which was announced last year. In 2021 the average monthly childcare cost in the UK was £936, it has gone up since then and is averaging £1,139 a month. These eye-watering numbers are for sending a child under two to nursery full time (about 50 hours per week).
Last year the government announced it was extending 30 hours of free childcare to all children between nine months and five years, phased in gradually by September 2025. The previous policy had been 30 hours of free childcare for children aged two and three. The first set of new entitlements comes in this week where working parents of two-year-olds can access 15 hours of free childcare. (The next phase will be in September 2024, so that 15 hours of free childcare is extended to all children from age nine months, and the final phase in September 2025). There was also an increase in the monthly childcare allowance for people on universal credit by about 50% to £951 per child.
The policy was obviously a big hit with parents, but not quite as popular with early years organisations. Many organisations felt as though there was not enough consultations with them when the government was forming the policy. The problem for nurseries is the hourly rate set by the government for the free places doesn’t match the actual cost, and it is worsening the retention of good staff. Cost discrepancies have been offset by price increases for unfunded hours, such as holidays and additional weekly hours, plus “extras”, such as food and nappies, meaning parents end up not saving as much as anticipated. This is causing a major issue for early years organisations, with some having to close down completely, in fact there were 3,004 fewer Ofsted-registered early years organisations in August of last year compared to the year before. A survey done by the Early Years Alliance of 1,196 organisations showed about 24% of respondents will be likely to close in the next 12 months, and 19% say it is likely their organisation will opt out of offering early entitlement offers.
A few weeks ago on Radio 4 I heard many stories of how hard it is to get a place at a nursery. One extreme example was a woman who has signed her future child up for nursery whilst she is 6 months pregnant. This is for a place in a funded nursery when the child is between 9-12months old, and this woman doesn’t know if this nursery will still offer funded places, or even exist when the time comes for her child to go there. Some of this depends on the area you live in and the options available. Some parents will find this very stressful if they can’t get the standard of childcare they wish to have, or risk having to pay significant prices when many nurseries inevitably opt out of the entitlement offers.
On the Education Department’s own blog (it’s okay, I read it so you don’t have to) they call this “the biggest investment by a UK government into childcare in history” and estimate the cost will double from £4bn to £8bn. This is a relative drop in the ocean compared to the over £2.5 trillion of government debt in the UK, but we’re not sure how well the money is being spent. At Hawksmoor we like to think we know the difference between price and value. Somewhere along the line the UK has become a high tax, low service country – even the Chancellor of the Exchequer recently said £100,000 per year salary wasn’t very much in his constituency with rising house prices and general cost of living. How did we get here? I’m not sure what will happen over the next 12 months, but there has been no mention of the childcare policy in the 2024 budget, maybe because it has essentially created higher prices and fewer nurseries. If you ignore it, it didn’t happen right?
Emily Cave
FPC2499
All charts and data sourced from FactSet
Hawksmoor Investment Management Limited is authorised and regulated by the Financial Conduct Authority (www.fca.org.uk) with its registered office at 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. This document does not constitute an offer or invitation to any person in respect of the securities or funds described, nor should its content be interpreted as investment or tax advice for which you should consult your independent financial adviser and or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. The editorial content is the personal opinion of Emily Cave, Trainee Research Analyst. Other opinions expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represent the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. Currency exchange rates may affect the value of investments.
