Rishi Sunak should funnel billions of pounds into free childcare to help get more parents into work to tackle acute workforce shortages, according to Britain’s leading business group.
The Confederation of British Industry (CBI) said the government urgently needed to announce extra funding and changes to childcare and early years support, arguing that a more accessible and affordable system was an immediate economic priority.
The lobby group, which represents more than 190,000 businesses across the country, said as much as £9bn of investment was required to improve the system and expand free childcare to one- and two-year-olds.
It comes as the government faces growing demands to expand the 30 hours of childcare for three- to four-year-olds in England, with different schemes in Scotland, Wales, and Northern Ireland.
Warning that parents in Britain faced among the most expensive childcare costs in the developed world, the CBI said an independent review of the system was long overdue, while suggesting changes could help firms grappling with record numbers of job vacancies.
The intervention before the chancellor Jeremy Hunt’s spring budget comes as ministers review options for increasing participation in the workforce after an exodus of “missing workers” since the Covid pandemic.
Official figures show almost 9 million working-age adults are economically inactive – neither in work nor looking for a job – including men and women who are caring for family.
Studies suggest inadequate access to childcare prevents about 1.7 million women from taking on more hours, equating to more than £28bn in lost economic output each year and exacerbating cost of living challenges.
As many as three-quarters of firms in Britain have been hit by labour shortages over the past 12 months, with more than 1m vacancies nationwide, after a sharp rise in early retirement and long-term sickness, as well as tougher post-Brexit rules limiting migrant labour.
The former prime minister Liz Truss last month urged Sunak not to ditch her proposals on childcare changes, including plans to scrap mandatory staff-child ratios in nurseries and increasing funding by 20 hours a week. However, she faced opposition over the ratio plan amid concerns over the quality of care, while business leaders are understood to favour an expansion of funding.
In its submission before the budget, the CBI said solving labour shortages was one of four key priorities for business. It also called for a package of investment reliefs to offset the planned rise in corporation tax from 19% to 25% from April, as well as urging an expansion in financial support for firms with their energy bills.
Tony Danker, the director general of the CBI, said an end to the government’s super deduction tax break and the rise in the headline rate of corporation tax would have a “huge impact” on investment in the UK.
“We know the economy can – and must – break out of its low growth trap, but we will need action on business investment to achieve it,” he said.
“The tight labour market and economic inactivity is another big concern for all businesses across all sectors. With more than 1m vacancies and UK parents facing some of the highest childcare costs in the OECD we need to see immediate action to urgently solve the labour challenge.
“Without it, businesses are left trying to grow, invest and become more productive with one hand tied behind their backs.”