PUBLISHED: 22 February 2024              AUTHOR: Florence Di Pesca

The issue extends beyond comparing parental costs to encompass societal expenses in providing childcare, which prove challenging to assess accurately, requiring meticulous data collection and calculations. In this blog, SMF's Hari Menon contrasts childcare provision costs in the UK and Sweden, stimulating discourse on childcare accessibility.

UK Childcare

Frequently cited as among the world's highest, British childcare costs are estimated at around 25% of income post-benefits, per OECD data. Particularly in inner London, some parents spend over 70% of their weekly take-home pay on childcare. Despite this perception of high fees, nurseries struggle financially, with the average nursery underfunded by £2.31 per hour per child promised 15 hours of free childcare weekly, as per the National Day Nurseries Association. Although the Spring 2024 Budget pledges improvement, closures have already occurred, leaving an irreversible impact.

Childcare in Sweden

Contrastingly, OECD data places Sweden's childcare costs at 5% of income for a similar family, one-fifth of the UK's expenses. With the Swedish government capping per-child expenses at 3% of income and instituting progressively lower limits for subsequent children, affordability remains consistent across family types. Sweden's predominantly publicly managed childcare system sets a global standard for quality and affordability.

Notably, Sweden's progressive childcare subsidy defies the OECD trend of higher childcare center enrolment rates among wealthier families. In Sweden, 60% of children from the poorest third of families attend childcare centers, compared to 46% from the wealthiest third. Conversely, in the UK, only 32% of children from the poorest third attend compared to 59% from the wealthiest.

Source: OECD Family Database

Cost to Provide vs. Price to Pay

From one standpoint – that of parents – the British childcare system appears markedly expensive compared to the Swedish counterpart, which is notably more affordable. However, this assessment represents only a partial view. It's imperative to consider the societal cost of childcare, encompassing both parental expenditures and government subsidies. Only by examining the comprehensive economic cost of providing childcare, rather than solely focusing on parental expenses, can we accurately gauge whether the inefficiency lies within the British childcare system, necessitating supply-side reforms, or if the issue lies in inadequate state support.

The challenge lies in the absence of comprehensive data that combines parental costs and public subsidies to determine the full cost of childcare provision. Assessing whether British childcare is comparatively more or less efficient than its international counterparts proves surprisingly complex, requiring meticulous data collection and analysis.

To initiate this examination, we opted to compare the UK with Sweden, renowned for its seemingly affordable childcare, making certain simplifying assumptions. In the UK, where childcare is predominantly privately operated, cost data is available at the company level. Assuming negligible profits due to the sector's thin margins, we equated total costs with total revenues, incorporating fees from parents and government grants. By analyzing a sample of companies along with their occupancy rates and number of facilities, we derived the average cost of providing childcare services per setting, per child, and per hour annually, adjusted for purchasing power.

In contrast, Sweden's publicly operated childcare system by municipalities offers readily available cost information. By combining each municipality's total cost of providing childcare services with data on enrollment rates and facility numbers, we obtained comparable statistics to those in the UK.

However, it's essential to approach these results with caution. This preliminary analysis utilizes publicly available data and compares the UK with just one other country – Sweden – disregarding other potential benchmarks like France or Canada. The aim is to initiate discourse on childcare accessibility, prompting further investigation and exploration for improvement, rather than offering definitive conclusions.

Costs in the UK

Data for the UK was primarily sourced from five major childcare providers, as outlined in Table 1.

Source: Data as of 2021 (2022*) taken from Nursery World and HMRC

A study conducted in 2020 on early years providers revealed that the industry's occupancy rates ranged from 75% to 85%, leading us to assume that 80% of available places were filled. Additionally, a Department of Education study indicated an average of 23 hours of childcare per week for children aged 0-4. With these assumptions and considering the total revenues and places of the sample companies, we determined that providers face an average annual cost of:

USD PPP $1,176,458 per setting / £823,520

USD PPP $15,721 per child / £11,004

USD PPP $13.14 per hour / £9.20

These figures are broadly aligned with the average hourly fees paid by parents, which ranged between £5.60 – £5.72 in 2022, as well as government funding averaging between £5.00 – £5.62 per hour in 2022, resulting in a slightly higher total of £10-11.

Costs in Sweden

Table 2: Costs of childcare providers in Sweden

Source: Data as of 2021 taken from Swedish Statistical Database

The Swedish data was sourced from municipality finance records, where each municipality reports the total cost of childcare services, including payments to independent providers. These costs are partially offset by federal grants and parent fees, resulting in a lower net cost to the municipality. The total cost data can be combined with information on the number of childcare settings and enrollments across different age groups (1-5). Since Swedish parents typically receive over a year of paid parental leave, they often do not send their children to childcare centers before they turn one. On average, Swedish children spend approximately 30 hours per week in childcare. Analysis of data from the 15 municipalities in Sweden with the largest number of childcare settings reveals that municipalities face an average annual cost of:

USD PPP $1,151,209 per setting

USD PPP $26,010 per child

USD PPP $16.67 per hour

Comparative Analysis

Table 3: Cost Comparisons between the UK and Sweden (USD PPP)

While the cost per setting is generally similar in both countries, there are noticeable differences in the cost per child and per hour. These findings suggest:

1. Nursery settings in the UK accommodate more children per setting compared to Sweden. However, this doesn't necessarily imply overcrowding, as the UK maintains regulations regarding space per child and child-to-staff ratios.

2. The higher cost per child in Sweden is partially mitigated by the longer hours of childcare provided, indicating that overall, childcare provision in the UK may be less expensive than in Sweden.

Given that the Swedish system adjusts childcare costs based on income and imposes a cap on total monthly fees, parents have the flexibility to enroll their children in childcare centers for extended periods. With 30 hours of childcare per week, almost equivalent to a typical workday, both parents in Sweden can opt to work full-time. In contrast, the UK's provision of 15 free hours of childcare often necessitates that one parent sacrifices full-time employment to care for the child during the week or covers the government's contribution through additional childcare hours. The announcement during the Spring Budget of extending free childcare to 30 hours for children aged 9 months and older by 2025 offers hope for improvement.

If childcare is indeed less expensive to provide in the UK than in Sweden, the government may find it comparatively easier to fund an expanded childcare system domestically than it would in Sweden.

Conclusion

While British childcare is often seen as expensive and Swedish childcare as affordable, our analysis reveals a different story when considering societal costs. 

Contrary to common belief, the UK's childcare provision appears to be less costly. The main difference lies in the level of state funding, with Sweden allocating more resources. 

 This suggests that the UK's privatization of childcare services helps keep production costs down but strains providers. While deregulation is advocated by some, regulation may be necessary to maintain quality. 

With comparable salaries for nursery workers in both countries, UK nurseries seem adept at optimizing resources while meeting regulatory standards. Ultimately, our comparison with Sweden suggests that the UK's childcare system is not inherently inefficient but rather underfunded, necessitating increased government investment, as indicated in the recent Budget.