Universal affordable childcare could save taxpayer £1.5 billion a year

Some three-quarters of women with a youngest child aged three or four want to work, but with only 15 hours a week of free childcare available, many of them are unable to, found the report for the left-of-centre think tank the Institute for Public Policy Research.

The report cited reforms in the Canadian province of Quebec, where the introduction in 1997 of universal childcare at the cut-price rate of five dollars (around £2.80) a day was credited with driving an eight percentage point increase in maternal employment.

The IPPR calculated that increasing the employment of mothers of pre-school children by 10 percentage points could generate £1.45 billion for the Treasury - £500 million from extra tax revenues and £950 million in lower spending on tax credits and benefits. A rise of five percentage points would generate £750 million and just one percentage point £200 million, the report found.

A similar level of "cashback" for the Treasury could be generated from mothers currently working part-time taking advantage of affordable childcare to switch to full-time work, said the report.

The think tank argues that a key Government priority should be universal flexible and affordable childcare, made available through community institutions such as children's centres, rather than through cash benefits or tax free vouchers.

Dalia Ben-Galim, associate director at the IPPR, said: "The largest savings as a result of higher maternal employment comes from benefits savings - reduced spending on housing benefit and reduced spending on income support and contributory jobseekers allowance. The other economic benefits come from increased revenue through income tax and national insurance contributions.

"This all amounts to a substantial return to the public purse when maternal employment increases.

"Although any initiative to tackle the high costs of childcare for parents is welcome, there are real concerns that the Government's current proposals - a £750 million annual package for extending tax-free childcare - may not lead to more affordable childcare. Analysis shows that the scheme is skewed towards benefiting higher-income families, and that childcare costs will probably continue to outpace the Government's tax relief proposals in the coming years.

"We know that 43% of parents with children aged three to four who want to work or work longer hours find affordability of childcare a barrier, rising to half among parents with a youngest child between 0-2 years old.

"Universal childcare is the solution that will make Britain better off and help families deal with the squeeze on incomes and rising care needs as a result of the ageing population that means both parents and grandparents are increasingly called upon to provide care rather than remain in employment."

Liz Bayram, chief executive of childcare organisation Pacey, said: "IPPR have set out a compelling argument to build on the success of the current free entitlement which we know almost all families with young children use.

"Pacey welcomes this bold proposal so long as any extension is funded properly and embraces all forms of childcare - both in home and group settings - so parents can choose the childcare setting that best suits their family's needs."

A Government spokesman said: "The Government's long-term plan is to build a stronger, more competitive economy and a fairer society. Because we're getting the public finances back under control, we have been able to help people who work hard, including by making childcare more affordable.

"From 2015 tax-free childcare will benefit up to 2.5 million working families, massively expanding support compared with the current system. This is on top of further help through Universal Credit and extending help for two-year-olds."

Liz Bayram, chief executive of childcare organisation Pacey, said: "IPPR have set out a compelling argument to build on the success of the current free entitlement which we know almost all families with young children use.

"Pacey welcomes this bold proposal so long as any extension is funded properly and embraces all forms of childcare - both in home and group settings - so parents can choose the childcare setting that best suits their family's needs."

A Government spokesman said: "The Government's long-term plan is to build a stronger, more competitive economy and a fairer society. Because we're getting the public finances back under control, we have been able to help people who work hard, including by making childcare more affordable.

"From 2015 tax-free childcare will benefit up to 2.5 million working families, massively expanding support compared with the current system. This is on top of further help through Universal Credit and extending help for two-year-olds."