Budget measures to reduce childcare costs miss the importance of choice and flexibility to increase productivity.

The childcare announcements in the budget are good for London. But the discussion about the proposals have so far only focused on how they might help get parents back into work.

This is a mistake. There’s so much more to creating childcare policy that’s good for families and for the economy.

We need move the debate beyond a binary in or out of work distinction and recognise the importance of what hours childcare covers and how flexible jobs are.

These everyday factors are what will really make the difference to people’s lives and increasing growth and productivity – increasing pay per hour and getting the right people in the right jobs.

The impact of the budget’s childcare measures

At Centre for London we welcome the government’s plan, announced in the recent budget, to provide free childcare to children from the age of 9 months.

It’s good for London. London’s childcare costs are the highest in the country, and London parents are less likely to have access to informal childcare from family and friends. So reducing costs will make a big difference – at least once the scheme is fully implemented in 2025, and if the fees offered genuinely cover providers’ costs.

There are lots of good arguments for increasing government spend on early years education and care – including better outcomes for children and increasing gender equality – but the government is focussing on productivity, and the role of childcare in encouraging parents to work.

This raises the question of how much difference it will make. Paul Johnson of the IFS reckons it will be “a few tens of thousands”. The OBR thinks it will be 110,000.

In economic terms, these numbers are big but not huge. But the connection between childcare and productivity is not just about the number of people who work: it is about what they do and for how long.

Having children reduces women’s hours worked and pay per hour

Maternal employment in the UK is quite high by international standards and it’s risen in the last few decades, partly because the benefits system has got much less generous to mothers who don’t work.

But many mothers are in part-time work with a short commute because this is what fits with the childcare they can get. This means that, for women (but not men) having children tends to reduce both hours worked and pay per hour.

The structure of the benefits system means that paying for more hours of childcare to work full time often ends up costing more than people earn.

A key element of economic productivity is the ability to match people to the right jobs. Cities are good for this because they have lots of people and lots of jobs in one place so people can change job without having to move home.

But if parents can’t find or afford the childcare they need to do the jobs they are good at, then matching doesn’t work properly. Families lose out because they earn less, and businesses lose out because they have to train new employees rather than using the skills people already have.

Flexible work is still essential to stop women dropping out of employment

And getting parents back to work isn’t just about what happens when their children are still young.

Long gaps in employment can make it very hard for women to get back to work, and especially into well paid work. These long gaps are fairly rare after women have their first child, but get more common if they have two or more.

This has implications for the rest of their working lives, and into retirement: it’s a big part of the reason that women end up with much less in their pension pots than men.

Many of the people who benefit from this policy will be women who, thanks to more affordable childcare while their children are young, don’t drop out of the workforce after they have their second or third child. They will have better incomes and savings for the rest of their lives as a result.

Cheaper childcare is part of helping parents to work but it’s not the whole picture. Flexible work and flexible childcare provision are still essential. Even if parents secured 10 hours a day of childcare, it’d be hard for many in London to manage a 9-5 working day plus a commute.

And no amount of free childcare can compensate for the uncertainty of zero hours contracts, which can make it impossible for parents to book childcare.

If employers want to get the most productivity benefit from these childcare changes, they’ll need to combine them with other measures to attract and retain the best workers.