Who should be holding the baby?

Tens of thousands of mothers could be back at work in return for surprisingly small state subsidies. Polly Toynbee counts the costs and benefits of nannies and nurseries

With millions of people out of work, why should the Government bother to spend money on childcare so that more women can take jobs already in short supply? After all, 47 per cent of British mothers already go out to work, the highest proportion in Europe, despite the fact that Britain has the least state-aided childcare. If they do so well without help, why bother?

First, there is a natural justice argument: most women are very much poorer than men because they carry the financial cost of child-bearing for the rest of their lives. Their earnings and their pensions are lower because of their lost years at home. When they do work, lack of childcare means they fall behind in their careers, or never get to first base.

But if fairness isn't a good enough reason, there are other hard cash considerations. In an era in which so many women find themselves divorced and alone bringing up children, it is in the taxpayers' best interests to see that mothers become their family's breadwinners and not benefit dependants.

Women who are out of work and on social security for the eight or so years while their children are young have little chance of getting back into the kind of work that would support a family. They risk becoming a burden on the state for life while their children grow up with no work ethic, expecting money to come from a post office giro. So making sure that all mothers can work, married or not (for marriage may represent only a temporary security), has a long-term gain.

Also, low-income mothers alone at home all day with small children have been proved to be the single most clinically depressed group, and their deprived children suffer. Any national childcare scheme would help to relieve the stress in their lives.

But, finally, any scheme would include a huge surge in nursery school places. Research shows how every penny spent on nursery schools has a far greater effect on their education than money spent later on. A study of a group of British nursery school children found that at the age of 10 they were still six months ahead of other children in reading and maths.

The Home Office is full of enthusiasm for four pilot intensive nursery school projects in deprived areas, based on the American High Scope system. In America, the programme has been running for 30 years among the very poorest, and the results have been phenomenal. Among adults who went through High Scope, only 7 per cent had five or more arrests, compared with 35 per cent of other equivalent children. A total of 36 per cent of High Scopers went on to own their own homes, compared with only 13 per cent of the rest. A total of 80 per cent of the control group went on to social security, with only 59 per cent of the High Scope children ever using it. On this evidence, high-quality nursery education has a bankable social value.

At present, mothers get by on a patchy combination of childminders, play groups, nursery schools, families and friends in an unsatisfactory hotch- potch of care. Responsibility for the under-fives is awkwardly split between the departments of health (local authority care and registered private nurseries) and education (nursery schools). In contrast, other countries - from Spain to Denmark - have completely integrated nursery school and childcare systems, so children can move easily between them during the day.

Campaigners for a national childcare policy have sometimes hoped that it could be provided virtually free by the government. They believed the costs would be offset by the number of women who could leave social security, go back to work and start paying taxes.

Now, for the first time, a cost-benefit analysis of child care has been done by the Institute for Fiscal Studies, under the auspices of the Equal Opportunities Commission. Published today, it shows how many women would return to work for each pound spent on childcare. Alas, it turns out that there is no such thing as free childcare: in other words, the cost of comprehensive childcare to the taxpayer would not be offset by savings in benefits and gains in taxation. The study does show, however, that the cost of subsidising it could be quite modest.

At the moment the Government offers two meagre subsidies. Mothers on Family Credit can claim pounds 40 in disregard towards their childcare costs (which amounts to pounds 40 above their usual entitlements). The Treasury may well be astonished to learn that this new system, which was introduced in October, will get 10,000 women back to work and at the same time net the state a nice pounds 8m bonus in tax and benefits recouped. However, since there are over 3 million mothers of under-fives, this does not help many of them. The other concession is tax relief on nurseries provided by employers. However, there are so few workplace creches that this also helps very few.

Tax allowances, argue the IFS authors, are the worst way to offer a subsidy. They are expensive, costing pounds 160m, and would give a huge bonus to high- income women already paying for nannies and creches before they began to help other women back to work. On the other hand, that same pounds 160m could be used far more effectively to meet all the childcare costs for those taking home less than pounds 200 a week. That would get another 60,000 women back to work.

Today's survey only concerns under-fives, but mothers of children over five need childcare as much, if not more. Two months ago the Kids Club Network looked at the costs of providing after-school schemes for children aged from 5 to 12, a much cheaper proposition. For pounds 36.8m it could set up 5,000 after-school Kids Clubs, helping a new 25,000 mothers back to work - the best immediate outlook by far.

The Government has made no promises on providing any further help with childcare, though there will be an announcement soon on its commitment to providing a nursery place for every four-year-old.

But a row is in progress: the politicians want a voucher scheme, which would be more expensive as it would subsidise the rich who already pay for places, while the Treasury would prefer more direct provision.

An announcement is expected soon. Labour says nursery education for all three- and four-year-olds is its top education priority, while the Liberal Democrats have promised a National Childcare Agency.

Employers have jumped on to the campaign for childcare, urging the Government to do more. More than 30 leading companies, including British Gas, British Airways, Boots, Marks & Spencer and WH Smith, say they offer some sort of childcare, but warn that employers alone cannot provide enough. It needs employers, parents and the state to contribute to a comprehensive scheme. However, few expect the coming government announcement on four- year-olds to go anywhere near meeting that target.

Good and bad ways to pay for care

1 The worst option would be one designed to make sure there was no disincentive to women who choose to stay at home with their children: a pounds 10 allowance could be given to all mothers, added to child benefit to spend as they choose. Cost: pounds 1,600m. Result: no more mothers back to work.

2 Tax relief of all kinds is found to be ineffective in getting women back to work, despite vociferous campaigns in favour of it by more affluent women's groups. A tax relief of up to pounds 50 per week to cover childcare costs would only help higher-earning women, while most women working part- time hardly pay tax. Cost: pounds 160m. Result: 10,000 mothers back to work.

3 pounds 10 voucher for childcare for working parents. Cost: pounds 170m. Result: 30,000 more women back to work.

4 State-funded childcare for all working parents would be expensive and would help the better-off most. Cost: pounds 900m. Result: 60,000 more mothers back to work.

5 Subsidising all childcare only for those taking home under pounds 200 a week. Cost: pounds 160m. Result: 60,000 more women back to work.

6 Subsidy to after-school clubs for children aged 5 to 12. Cost: pounds 36.8m. Result: 25,000 more women back to work.

7 The cheapest option is the one the Government has just introduced. By giving a pounds 40 disregard on Family Credit to cover childcare, the Treasury is making money out of savings in benefit and increases in tax paid. But very few women, mainly single mothers, qualify for Family Credit. Cost: nothing, the Treasury gains pounds 8m. Result: 10,000 more mothers back to work.

Extracted from 'The Impact of Subsidising Childcare' by the Institute for Fiscal Studies and the Equal Opportunities Commission.