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Mechanisms to Control Fees Charged to Parents for Early Learning and Care and School-Age Childcare

December 22, 2020

On November 13, the Department of Children, Equality, Disability, Integration and Youth (DCEDIY) published the first suite of research commissioned to support the development of a new funding model. Five papers were produced by Frontier Economics. This week, The Big Picture summarises Working Paper 4.  Last week’s article on Working Paper 3 can be found here.

The aim of the paper is to document the use of fee controls for Early Learning and Care (ELC) and School Age Childcare (SAC) and to review the evidence on the effects of these mechanisms, drawing out lessons on how those might be applied in Ireland. The methodology is based on a literature review of fee control mechanisms used in 19 countries. Evidence on their impacts was identified for 9 countries.

 

Key features identified are the following:

  • Controls are only applied to provision that is publicly funded;
  • Around half of the cases identified set a specific rate and the remainder impose a maximum amount. Just under half of the cases have exemptions from fees, that is, some families receive ELC for free. This is usually the case in countries which generally do not offer free places or have a limited offer;
  • In 12 cases, the rates or maximum amounts vary across households according to their income level. For 8 of these 12 cases, fees also vary by the number of children in the family;
  • There is little information about how fee control levels are determined. The rationale behind maximum fee caps expressed as a proportion of family income or the minimum wage relates to the reasonable amount that parents are expected to pay. Rates expressed as a proportion of delivery costs, suggest that there is a notion of the reasonable proportion of costs that parents might be expected to pay or that the state pays as much as it can, and parents must pay the rest.

 

Evidence on the effects of fee control mechanisms shows that:

  • The fee controls lowered childcare costs for parents and increased childcare use, but the impacts favoured higher income families more than lower income ones. This is because children of lower socio-economic status are less likely to attend childcare, and when they do, it tends to be of lower quality. Higher income families on the other hand use more hours, which also tend to be more “expensive” hours, so they benefit most;
  • There were positive impacts on maternal employment, but not in cases where employment rates were already high;
  • Although the public spending costs of the policies were high, there were substantial returns to the government in the form of increased tax revenues and reduced transfers as maternal employment rates increased or the ELC workforce expanded.

 

Unintended consequences identified in the literature include:

  • Lack of available places, despite increases in places offered. This was due to substantial increases in demand;
  • Adverse effects on quality. This has been attributed to processes of expansion of low quality provision, pushed by the increased demand. Another reason is the emergence of dual systems – one with fees restrictions and one without them. When that happens, the latter tends to have higher quality;
  • Adverse effects on child outcomes. This has been attributed to the creation of incentives to use long childcare hours for children at a young age, which may be detrimental to child development;
  • There is some very limited evidence indicating problems of financial sustainability and longer-term investment due to fee caps.

 

The authors conclude that the implementation of fee controls in Ireland would have to include considerations for:

  • Setting controls that allow for financial sustainability without driving excessive profits or surplus for providers;
  • The distribution of benefits across different types of families and the work incentives they create;
  • Conditionality measures, such as conditions to prevent providers using ways to circumvent the fee controls; conditions on quality, wages and work conditions; and regulations on profit rates;
  • Facilitation of investment in expanded capacity;
  • The unpredictability of the budget increases required, as this will be dependent on potential changes in demand, that are unknown.

 

The report provides a valuable review of the policies being implemented around the world, regarding their characteristics and effects. Early Childhood Ireland will continue to analyse Frontier Economics’ reports in the coming weeks.

 

 

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