The extension of state-funded childcare support in 2017 contributed a potential £22.3bn to the UK economy after one year, according to a new study by PwC and The Salvation Army

• UK Government’s 2017 increase of state-funded childcare support for 3-4 year olds in England has contributed a potential £22.3bn in Gross Value Added and drove a 1.3ppt increase in under-50s employment rate, equivalent to 286,000 new workers, after first year of implementation
• Divergence between policy implementation in England and Scotland created an  opportunity to study economic outcomes resulting from changes in childcare subsidies.

The 2017 increase in state-funded childcare support for 3-4 year olds in England contributed a potential £22.3bn in Gross Value Added to the UK economy and drove a 286,000 increase in labour force participation in the first year after implementation, according to a new study by PwC and The Salvation Army.

The report has been able to identify the labour market impact of the reforms by comparing outcomes in England, which extended state-funded childcare from 15 hours to 30 hours in 2017, and Scotland, which introduced broadly equivalent support in 2021.

Based on ONS data, the report has found that the policy extension led to a 1.3ppt increase in the under-50s employment rate and a 1.1ppt increase in the labour market participation rate for the same demographic. This equates to an additional 286,000 people employed in the first full year after implementation in England compared to modelled outcomes if the policy had not been enacted.

Siobhan Prendiville, economist at PwC, says:

“The variation between England and Scotland implementing equivalent childcare support has represented a significant opportunity to study the impact of this specific policy on labour force participation.

“Our modelling indicates that the expansion in childcare subsidy for 3 and 4 year olds had a large and significant impact on labour force participation, and that the labour market has absorbed the overwhelming majority of these additional workers.

“Given the current focus on economic inactivity in the UK domestic workforce, these findings highlight the potentially significant productivity and employment gains through extending childcare provision as well as improving equality of access to those on lower incomes.”

Lt Col Dean Pallant, Secretary for Communications at The Salvation Army, says:

“Through The Salvation Army’s work as a provider of formal and informal childcare and Employment Plus services, we know that affordable and accessible childcare is economically and morally right, offering a route out of poverty for many families.

“The Government’s recent announcement to expand funded childcare was a move in the right direction, but more work needs to be done to make sure that parents on low incomes can get the same access to childcare as families who are better off.  There needs to be adequate funding for providers, more flexibility in the system to meet the needs of parents who have to work atypical hours, and more help for families who need affordable childcare during the school holidays.

“PwC’s report provides clear evidence that improving access to childcare is essential for parents who want or need to work, and vital for the health of local and national economies.”

Notes to editors:

For more details on methodology please download the full report: The economic impact of childcare policy [PDF]