The Childcare Conundrum

From top: Katherine Zappone, Minister for Children and Youth Affairs at the Aishling Nursery in Tallaght last June; Michael Taft

Everyone is trapped in Ireland’s childcare model – providers, workers, parents and, most of all, children.

Michael Taft writes:

The only potentially bright spot in an otherwise dismal budget was the proposals on childcare.The National Women’s Council of Ireland also welcomed the proposals:

‘NWCI has welcomed the announcement of a comprehensive childcare package as part of Budget 2017 as a significant change of direction that has the potential to have a huge positive impact on women’s equality if further funding will be provided.’

Potential seems to be the word. We should all hope that Minister Katherine Zappone’s proposals work. Ireland has one of the highest childcare costs in Europe.

Costs of €1,000 per month or more are not only a burden on households; they are an impediment to people (usually women) from entering the workforce. Anything that can reduce this burden and remove obstacles from work should be welcomed.

But there is a long ways from potential to actual. While much of the debate on the Minister’s proposals has focused on caring in the home I want to look at the potential of both reducing household costs and improving the quality of the services.
At the risk of oversimplification (you can read a little more detail here and here), the Single Affordable Childcare Scheme will amalgamate a number of schemes with two types of payments:

A universal payment for all children between six months and three years – a minimum of €20 per week regardless of household

A means-tested payment with a maximum payment of €259 payment per week, tapering off to a net income household threshold of €47,500.

The payment will be paid directly to the childcare provider or crèche.

Much of the commentary assumes that these payments constitute a reduction in the fees but this is not the case. The Department of Children admits as much:

‘Childcare fees are determined by childcare providers. The Affordable Childcare Scheme will provide a subsidy towards the fee charged by the provider, but the sum that parents will have to pay will then depend on the childcare provider’s own fee policy.’

In other words, the subsidy will be paid to the provider. As to the fees charged, that will be the decision of the provider. The provider could reduce the fees by the entire amount of the subsidy, a partial amount or – at the extreme – not at all.

It would be wrong to put the providers in the hot seat on this one. The problem lies in the loosely regulated market-model of childcare that we operate. A market model means that each individual provider must balance expenditure and revenue to break even.

Any additional cost must be, by and large, passed on to the parents. And loose labour market regulation means that staff are poorly paid in an occupation with few qualifications or career paths. Everyone is trapped in this – providers, workers, parents and, most of all, children.

The Department is hopeful of a ‘pass-on’ to the parents and is hopeful that measures requiring that providers publish their fees will help parents to ‘shop and compare’ (should this have to happen in what should essentially be a public service?).

But there are many legitimate reasons why providers might be unable to pass on the subsidy in whole or substantial part.

During the recession many providers kept fees down knowing that parents couldn’t afford increases. This meant years of pent-up spending pressures (e.g. maintenance, replacement, investment).

It also meant years of depressing wages which has resulted in poor living standards for the worker and high staff turnover for the provider which drives up costs.

Now that there is money in the system, the provider can engage in spending – on building, equipment, service provision and staff.

Let’s go through some numbers based on the Deloitte review of the costs of a childcare facility. The review dates back to 2007 so we’ll treat this as indicative but given that the costs per child at that time were between €215 and €254 per week, the numbers remain relevant for this exercise.

A model childcare facility has overall costs of €553,000. Of this, staff costs make up 67 percent, given the labour-dense nature of this work. Building costs (maintenance, repairs, rent, insurance, etc.) make up another 23 percent with direct costs (food, cleaning, materials, administration, banking) make up the rest – 10 percent. In the model facility, there are 47 children though some would now be catered through the free pre-school years where available.

So now the state will pay approximately €47,000 to the provider in respect of the attending children. However, if staff receives a 10 percent pay increase – in many cases taking them off the minimum wage – this will eat up a substantial portion of the subsidy.

In the Deloitte study, it would take up 80 percent of the subsidy, leaving the provider in a position to reduce fares by €4 per week. Any small increases in building or direct costs (to improve quality) will cancel out the subsidy leaving the parents paying the same fees.

This doesn’t count the cost of professionalising the service with degree-education for childcare workers. The report states:

‘Crucially, there is no reward for obtaining a degree in early childhood education and care and, with the exception of the ECCE (Early Childhood Care and Education) scheme – which requires a minimum of a Level 6 qualification – there is no incentive for existing educators in the field to upskill to higher level qualifications.’

Nor does it consider the issue of supply. Increasing the number of childcare places through new establishments is a costly activity.

Though labour market regulations are lax, there are, fortunately, very high building, health and safety standards making up start-up costs extremely high. It is questionable whether the subsidies will have much impact in this area.

And what about moving to best practice ‘educare’ facilities that exist in Scandinavia and other European countries? Have a read of this and see how far we have to go to reach the highest standards of care, education, accessibility and affordability.

Providers with a high number of low-waged parents will fare better given the high levels of subsidy. They will hopefully be able to provide for better paid and qualified staff, better service quality and reductions in fees.

But for this to become widespread across the sector would be extremely costly and potentially highly inflationary.

‘Keeping childcare costs down will be a challenge when a range of subsidies are introduced next September, the Minister for Children and Youth Affairs, Katherine Zappone, said last week. We may be running in spending just to stand still in affordability.

None of this is the Minister’s fault. She has inherited a market-model system which has been neglected for decades by successive governments.

Ideally, childcare would be categorised as a public service, produced at local level through local authorities combined with a network of highly regulated not-for-profit providers.

The state would absorb the costs but be in a position to control those costs – and set fees not based on cost-recoupment but on affordability.

But realistically this government is not going to go for this. Nonetheless, it might be an interesting exercise for the Minister to draft up a childcare policy based on a public service – to establish a benchmark.

Having established a best-case scenario, then one could construct policies and strategies to move our fragmented market-based model towards that goal.

Minister Zappone deserves support for taking up this issue in a reforming way. Now it’s for all of us who want to see these reforms succeed to point out the fault-lines, traps and means to achieve the goal of a high-quality affordable childcare system.

It won’t be easy. And that’s an under-statement.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

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