(Bloomberg) -- Rachel Reeves is considering proposals for a funding package to expand childcare services, as one of the UK chancellor’s growth-driving measures in a budget widely expected to be dominated by tax rises.
The Department for Education has asked the Treasury for more money to increase the number of nurseries and nursery staff, people familiar with the matter said. Reeves is receptive in principle and sees parents returning to work as a way to boost growth and improve productivity, though one person warned she is yet to sign off any spending plans for the Oct. 30 budget and is unlikely to approve large commitments given the strain on public finances.
Still, ministers point to the estimated £4 billion ($5.3 billion) of fiscal head room she got via recent Bank of England moves, and Reeves’s own hint Monday she’d seek more wiggle room by adopting an accounting change on specific government investments, as a sign that even in a punitive budget there will still be room for at least some spending measures.
Reeves also has form on the topic. In April, with Labour still in campaign mode but already seen as a shoo-in to win power, Reeves told business leaders she wanted to overhaul the childcare sector “so that all women who want to go out to work and balance family and work contributions can do so.”
Prime Minister Keir Starmer’s office is also supportive of the education department’s proposal for childcare, according to the people. In its election manifesto, Labour promised to create 3,000 nurseries in schools at a cost of £35 million, to be paid for by ending the party’s key policy to end the VAT exemption on private school fees.
Money will be allocated in the budget to meet that commitment at a minimum, the people said, but is likely to be more than the £35 million if Reeves agrees.
The previous Conservative government introduced a significantly expanded childcare provision that kicks in fully from September 2025, including ensuring all eligible families with children aged from nine months to three years are able to access 30 hours a week of free childcare. As a result, the administration expects to be spending around £8 billion on early years childcare by 2027-28, around double the current level.
But parents can only access the expanded childcare entitlement where childcare places are available, and even the staggered introduction of the new rules is creating an imbalance of supply and demand. Overall, the measures are expected to require about 40,000 extra staff.
According to the Institute for Fiscal Studies, the changes will result in the government effectively on the hook for about 80% of pre-school childcare — up from around 50% now — once the expanded 30 hours entitlement is fully implemented. That puts additional pressure on ministers to get the payment rates to nurseries right. Almost eight in 10 nursery settings were struggling to hire staff, according to a survey in August by the Early Years Alliance.
On Monday, Reeves used her speech to the Labour Party’s annual conference in Liverpool to promise a budget that shows “real ambition,” and emphasized education as an area she wants to invest in. Her tone was more upbeat, after she was criticized for spending much of her 11-week tenure warning of the unpopular measures she’ll have to take to address a £22 billion ($29 billion) fiscal hole she said she’s inherited. That’s raised expectations of tax rises, with levies on inheritance, capital gains and property predicted to go up.
During broadcast interviews, she also said there would be no return to the austerity measures imposed by the Conservative government in the aftermath of the financial crisis, and promised “real-terms increases” to government spending over the government’s five-year term.
Still, she also told BBC Radio 4 that spending budgets for individual departments would have to be “negotiated.”
--With assistance from Siraj Datoo.
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