THE FINANCING OF EARLY CHILDHOOD EDUCATION AND CARE

Extract A: Registered childcare providers and enrolments in thousands in England, 2013 and 2023

Extract B: Alternative funding systems for early childhood education and care (ECEC)

Sustaining a high-quality, highly-qualified early years workforce while keeping facilities modern requires reliable, substantial capital and operational funding. Where should these resources be generated?

One system relies on direct state provision, where the government funds and operates early childhood centers through general taxation, making them free at the point of use for all families, similar to the Nordic model or primary school education. Under this model, childcare is viewed as a universal public service, eliminating fees and reducing administrative hurdles for parents.

An alternative mechanism is employer-supported childcare, where corporations directly subsidise nurseries or offer workplace childcare vouchers. However, evidence from international labor markets shows that only large, multi-national corporations offer these benefits, covering less than 4% to 6% of the national workforce. For employees in small-to-medium enterprises (SMEs) or the gig economy, employer childcare support is virtually non-existent.

Some propose philanthropic sponsorships or community-led cooperatives, where local charities or community trusts fund neighborhood nurseries. While successful in a few highly cohesive, affluent communities, voluntary contributions and community fundraising are highly unequal and insufficient to cover the multi-billion-pound operating costs of a nationwide childcare network.

Extract C: Private returns of childcare vs social benefits

Over the past decade, many liberal economies have shifted childcare costs onto parents through market-led fee systems, supplemented by targeted government subsidies. Proponents of parent-paid tuition fees argue this is a fair application of the benefit principle. They cite labor market data showing that access to reliable nursery care yields an average lifetime maternal earnings premium of approximately £145,000 due to reduced career breaks and faster progression to senior roles. Because families receive direct, substantial private financial benefits, it is argued they should pay the market price, ensuring that childless taxpayers are not forced to subsidise the lifestyle and family choices of others.

Conversely, critics argue that market-based nursery fees act as a major barrier, especially for low-to-middle income families. In some areas, full-time fees can consume up to 40% of a parent's net take-home pay, forcing many (predominantly mothers) out of the workforce.

Furthermore, developmental psychologists and economists argue that high-quality early years education is a merit good that generates massive positive externalities—including long-term improvements in school readiness, reduced crime rates, higher adult productivity, and narrowed achievement gaps between disadvantaged children and their peers. Left entirely to a market-fee model, early childhood education is likely to be severely under-consumed, leading to substantial market failure.