Childcare from a macroeconomic perspective

Phyllis had a good rant recently about how unaffordable childcare is in the UK.

Her focus was on how it looks from a family’s point of view. However, even from a macroeconomic perspective, the British solution is horrible.

Basically, if childcare becomes too expensive, mothers will stop working till the kids are out of the way. That means no income for her, and thus no income taxes.

On the other hand, have a look at the sums as they would look if the state paid for the nursery:

Cost of nursery	£9000
Income tax for typical salary	£8000
Income tax for 1/6 nursery worker	£1000
Other taxes etc.	£1000
Net gain for the state	£1000

All of these figures are very rough estimates, of course. The last column is for things like VAT on products spent using the extra income, and taxes paid by the nursery.

So basically it would pay off for the state to provide free full-time nursery places in the same way as schools.

Of course, most parents would be happy to pay some money for childcare, so the state could for instance decide only to pay 2/3 of the cost, which would lead to even bigger economic benefits.

The trick is to set the subsidy at a level where people (mothers) prefer to work rather than staying at home.

All of this is seen from an economic perspective. One should of course also think about what’s best for the children, and perhaps for that reason decide only to subsidise half-time nursery places rather than full-time ones.