The price of free preschool

Universal preschool for three-year-olds is expensive and only leads a small number of women into work, research shows.

Offering free, part-time preschool education for all three-year-olds in England helped only a small number of women into work. But this is mostly because most families were accessing some form of preschool childcare before the entitlement was introduced. Amongst the small number of women whose youngest child went to preschool for the first time as a result of this policy, around one quarter moved into work.

For the remaining families, the policy effectively gave parents a discount on preschool education they would have paid for anyway. Offering free preschool places to all three-year-olds is thus an expensive way to move a small number of women into work.

Most mothers would have paid for childcare without the free entitlement. Thus, the policy cuts the cost of buying childcare without boosting employment rates.

These are the main conclusions of ‘The Impact of Free, Universal Preschool Education on Maternal Labour Supply’, a new report by the Institute for Fiscal Studies (IFS), an independent economic policy research organisation. Claire Crawford an Assistant Professor in the Department of Economics at the University of Warwick and a Research Fellow with IFS, is among the team of researchers at IFS and the University of Essex who conducted the analysis.

In 1998, the previous Labour government announced that all three- and four-year-olds in England would be entitled to a free part-time nursery place. (Similar policies operate outside of England, and the policy was extended to some 2 year olds in 2013, but the research does not look at either of these.)

The availability of free places expanded relatively slowly for three-year-olds, becoming effectively universal across England by 2005. The researchers explored how this gradual roll-out of the free entitlement affected the work patterns of mothers with three-year-old children. They found that:

• Between 1999 and 2007, the proportion of three-year-olds in England benefitting from a free early education place rose by about 50 percentage points, from 37 percent to 88 percent. But the number of children benefitting from any kind of formal early education increased by much less: for every six children given a free place, only one additional child began to use early education; for the other five children, the policy effectively gave parents a discount on the early education they would have paid to use anyway. (About four in 10 three-year-olds in England were using free nursery education provided by local authorities in the late 1990s, before the national entitlement came in, and not all children take up their entitlement afterwards.)

• The fact that an additional 50 percentage points of three-year-olds in England gained access to a free place had very little impact on mothers who also had children younger than age three. But for mothers whose youngest child was three, it increased the fraction who were in work by 3 percentage points (from a base of around 53 percent), meaning an additional 12,000 mothers in work. Most of these mothers moved into part-time work (of less than 30 hours per week).

• This implies that the effect of the policy on mothers who started using childcare as a result of being offered a free place is large: amongst such mothers, one in four moved into work. But for the majority of mothers who would have paid for childcare without the free entitlement, the policy simply cuts the cost of buying childcare without boosting employment rates.

• The additional places for three-year-olds costs funded by this policy compared with the position in 1999 cost around £0.8 billion a year in 2014. Our estimates suggest that 12,000 additional women moved into work as a result of the policy, mostly working fewer than 30 hours a week. The policy has several aims but, at over £65,000 per extra person employed, it is a very expensive employment policy.

‘Offering free part-time preschool places for all three- and four-year-olds in England is a high-profile and expensive policy, and is part of the reason why, from lagging well behind most European countries in the early 1990s, the UK is now one of the highest spenders on pre-primary services in Europe,’ Crawford said.

‘Our study shows that this policy helps a few more children to access preschool care and enables a few more mothers to work. But it is clear that it has not transformed mothers’ labour supply in the way that might have been hoped: it has increased employment rates amongst mothers whose youngest child is aged three by about 5 percent. But at a cost of around £0.8 billion a year, it is certainly a very expensive way to do so.

‘There is a growing consensus in the UK, from across the political spectrum that extending the free entitlement will help more parents to work. It is certainly possible that extensions to the free entitlement could deliver greater benefits than those we have estimated, by making it easier for parents to combine with other forms of childcare or enabling them to access jobs with longer hours.'

'But the extent to which such policies would transform parental labour supply – and whether universal entitlement offers good value for money – are far from clear.’

Other researchers on the report are: Mike Brewer, Research Fellow at IFS and Professor of Economics at the Institute for Social and Economic Research at the University of Essex; Sarah Cattan, Senior Research Economist at IFS; and Birgitta Rabe, Senior Research Fellow at Institute for Social and Economic Research at the University of Essex.

The research was funded by the Economic and Social Research Council’s Secondary Data Analysis Initiative.