Here is an article which discusses the impact of subsidizing child care:


Childcare Subsidies and Mothers' Labour Market Decisions

A study published today (Friday 16th June) provides authoritative new
results on the effects of different methods of subsidising childcare costs
on the labour market choices of mothers of young children. The study, The
Impact of Subsidising Childcare, by Alan Duncan, Christopher Giles and
Steven Webb of the Institute for Fiscal Studies has been funded by the Equal
Opportunities Commission. The research begins by examining the economic
activity of mothers of children under 5. Based on the 1991-92 General
Household Survey, it finds that:

* only one mother in nine with a child under 5 is in full-time employment;

* three quarters of lone mothers with a child under 5 have no earnings at
all;

The report then surveys the arguments for increasing state subsidies for the
costs of childcare of young children. These are found to include the
potential benefits to children of childcare with some educational or social
content, and also the possible gains to women from greater access to the
labour market.

The rest of the report examines four broad strategies for subsidising
childcare. Each of them is analysed using microcomputer simulation models
based on large-scale household surveys to estimate what effect each strategy would have on the labour market choices of mothers. The approaches examined are:

* Benefit "Disregards"

With this approach, recently adopted by the Government, claimants of
benefits such as Family Credit are allowed to "disregard" or deduct part of
the costs of childcare from their income when being assessed for benefit.
The IFS analysis finds that this approach is highly targeted on lone parents
and is likely to cost the Government little or nothing since some lone
parents would be able to spend more hours each week in paid employment and
hence pay more tax and need less benefit. There is however limited scope for
extending this highly selective benefit disregard approach to cover large
numbers of mothers without beginning to incur more significant Exchequer
costs.

* Childcare Vouchers

In this case, mothers are given cash-limited vouchers which can only be
spent on childcare. A voucher of £ 10 per week per child under 5 would cost
around £ 300 million per year and would pave the way for around 30,000
mothers to take paid employment. This costing takes account only of existing
patterns of childcare use plus any extra use of childcare arising from a
change in labour market activity following receipt of the voucher. It does
not include the cost of any additional use of childcare which might follow
by mothers who did not change their hours of work.

* Subsidised Childcare Places

This approach involves direct subsidy of parents' actual childcare costs.
The study estimates that wholesale subsidy of this sort could cost around £
900 million per year, again including only the cost of subsidising existing
patterns of childcare use plus a cost estimate for those women who change
their working patterns. Such a subsidy would have strongly positive effects
on women's employment choices. An estimated 70,000 women would enter paid
employment and another 130,000 women would be able to work longer hours.

Two ways to restrict the cost of this form of subsidy are also examined:

a) only subsidise 3 & 4 year-olds: in this case the cost would fall to £ 400
million but the labour supply response would be much smaller because many
mothers of children of this age already work part-time;

b) reduce subsidy for those earning more than £ 200 pw: this cuts the cost
of the scheme to less than £ 200 million but still preserves much of the
positive incentive effect on lone parents in particular;

* Tax Relief for Childcare Costs

In this case weekly childcare costs up to a maximum of £ 50 would be allowed
against income tax at the lower rate of 20%. This is found to cost the
Exchequer around £ 160 million and to benefit mainly better-off two-earner
families. The labour supply response is small.

Commenting on the innovative methods of analysis used, one of the report's
authors, Alan Duncan, said:

"This study shows the benefits of detailed micro-economic analysis for
policy-making. Our results have shown that alternative childcare strategies
can have widely differing consequences and has helped to pinpoint the
effects of alternative strategies on the employment choices of different
groups of mothers".

EOC Chairwoman Kamlesh Bahl said:

"I welcome this study which the EOC commissioned as a contribution to the
debate about how childcare should be funded. The EOC believes the costs
should be shared between parents, employers and central and local
government. Childcare is essential to equality of opportunity and we hope
policy-makers will take note of the conclusions reached by IFS".

Summarising the report's results, another of the authors, Christopher Giles,
said:

"A significant increase in childcare subsidies will inevitably involve a net
cost to public funds, even allowing for the possible beneficial effects of
fewer mothers on benefits. However, the more targeted forms of childcare
subsidy can improve the return to paid employment for thousands of mothers
at relatively modest cost".

** ENDS **

Notes to editors:

1. The report, "The Impact of Subsidising Childcare" by Alan Duncan,
Christopher Giles and Steven Webb is priced £ 12.95, and is available from
IFS, 7 Ridgmount St., WC1E 7AE or from The Publications Department, EOC,
Overseas House, Quay Street, Manchester M3 3HN.

2. A summary of the report is available from the EOC Press Office on 0171
222 1110 or the IFS on 0171 636 3784.

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