Funding early childhood education across the board leads to return on investment

In a groundbreaking report, the Initiative Neue Soziale Marktwirtschaft (INSM) and the European Centre for the Development of Vocational Training (CEDEFOP) Luxembourg have highlighted the significant benefits of universal, high-quality early years education. This investment, they argue, is not just a humanitarian concern, but also one of the highest-returning, large-scale investments a government can make.

The report emphasises that it is more cost-effective to invest in the skills of lower-income children earlier in life to prevent educational gaps from forming in the first place. High-quality early years education builds skills earlier, leading to longer-term returns, and provides the platform for absorbing skills later in life.

The total cost of offering this education for 40 hours a week, 48 weeks a year, from ages one to four, is around £65,000. However, the benefits are estimated to be much higher, with various estimates placing them at 7 to 1, or even higher.

One of the key fiscal benefits is the substantial returns low-income children gain from high-quality early years education. These returns are estimated to be around 2.07:1. This means that for every pound borrowed and spent on early years education, the Treasury could potentially gain £1.31 in extra revenue.

The report also analyses the case for borrowing to invest in early years education. When funded through borrowing through an index-linked bond that pays a 1% real return above, the cost of paying these bonds off when a child reaches 60 is around £105,000 per child. Yet, the returns come largely from improving social and economic outcomes for low-income children and their parents.

However, the current funding offer in the UK, which provides 30 free hours a week for 38 weeks a year, falls short of this potential. This limited offer hinders the ability of mostly mothers to work full-time and progress in their careers. Furthermore, it excludes almost all of those on the lowest incomes, with only a quarter of eligible families with children aged 0-4 actually claiming the support for up to 85% of childcare costs.

Means-testing early years education may not lead to higher benefits for the Treasury due to the complexity of the system and the likelihood of eligible low-income households not receiving support. To ensure that low-income children, for whom the investment returns are greatest, can access the service, it is essential that access to early years education is universal.

The fiscal benefits of high-quality early years education include maternal employment, maternal earnings, child earnings (as adults), child employment rates (as adults), university graduation rates, crime reduction, and early years education employment impact. Ensuring every child has guaranteed access to early years education will lead to higher earnings, more growth, and the Treasury gaining money in the long run.

The Treasury's own accounting procedures could be adjusted to allow for investment in early years education to be counted as (human) capital expenditure. This would better reflect the higher returns that early years education provides.

In conclusion, universal, high-quality early years education is a promising investment for a brighter future. It is an investment in human capital that will lead to greater growth and tax revenues in the short and long run. The benefits far outweigh the costs, making it a worthwhile investment for governments to consider.

Funding early childhood education across the board leads to return on investment