Economic support for families with young children

DOI: https://doi.org/10.58248/PN772

The government provides financial support for new parents and families through policies such as statutory parental pay during leave from work, and funding childcare for young children. This POSTnote summarises evidence on parental pay and leave and childcare policies.

Changes in labour market participation have wider economic effects, including impacts on growth, tax revenue and public spending. The exact effects of parental leave and pay and childcare policies on the overall economy are uncertain. Some international evidence suggests that policies supporting families with young children through such mechanisms can make it easier for parents (particularly mothers) to enter and remain in work and/or to increase their hours, increasing labour market participation. Other research has found that these outcomes are not guaranteed.

Stakeholders propose a range of reforms, in terms of approach and cost, to support parents in the first years of their children’s lives. There is limited evidence in a UK context of what the economic effects of these reforms to parental leave and childcare policies would be.

Parental leave and pay

In the UK, there are different types of paid parental leave. These provisions apply to a wide range of family structures, including same‑sex couples and adoptive parents. References in this POSTnote to maternity and paternity leave reflect statutory terminology.

After the birth of a child, parents can take maternity, paternity, or shared parental leave (SPL). Parents may also be eligible for statutory parental pay. The duration of pay is different for maternity, paternity, and shared parental leave.

Parental leave and pay provisions can influence parents’ attachments to the labour market. For example, the balance of caring for children between mothers and fathers can have long-term effects on their individual earnings and career progression. Evidence shows that the difference between men and women’s hourly earnings grows in the years after parents have their first child.

In July 2025, the government launched a review of parental leave and pay in Great Britain (employment law is devolved in Northern Ireland). Some stakeholders have also proposed a range of reforms, such as simplifying provisions, increasing parental pay rates and extending paternity leave.

Childcare

Childcare entitlements depend on parental income, the age of a child, and immigration status, and differ between England, Wales, Scotland, and Northern Ireland.

From 2024 to 2025, the government expanded the entitlement to publicly funded childcare in England (see section 2). In 2023, the Office for Budget Responsibility estimated that, by 2027/28, this funding expansion could result in around 60,000 people entering employment in England. However, it noted that this estimate was “very uncertain”. They also expected a similar effect from mothers of very young children who already work increasing their hours by a much smaller amount.

Despite recent policy reforms, many stakeholders say that issues remain around access to, and affordability of, suitable childcare. The price and availability of paid childcare is unevenly distributed geographically and socio-economically.

There is a lack of certainty about the effects of specific measures, such as subsided childcare, on parental employment. Some experts suggest that men and women dividing paid and unpaid work in the way that best matches their skills could support the wider economy, through improving efficiency, and tax revenue.

A 2018 Treasury Select Committee report said that “an increase in parental labour force participation may not automatically increase productivity”. However, it said that it would likely have a positive impact on GDP per capita and tax revenue.

While many individuals and organisations welcomed the expansion of childcare entitlements, some proposed alternative approaches to reform. For example, making childcare more affordable through changing staff regulations (such as increasing the ratio of children to adults in some contexts),* rather than through increasing public spending.

Other proposals have included, but are not limited to, considering a funding model based on subsidising parental income; expanding entitlements further to cover more children; and increasing the generosity of support to cover more hours each year.

Public spending considerations

Economists highlight tight fiscal constraints and rising costs facing the government. For example, UK public sector debt as a share of GDP has almost tripled over the last two decades. The Institute for Fiscal Studies (IFS) thinktank has said that spending on funded childcare hours is more than eight times as high in real terms in 2026 as it was in the early 2000s.

There is not expert consensus on whether gains from proposed reforms to parental leave and pay and childcare would be fully realised, or whether they would outweigh the public costs required to enable them.

Scope

This POSTnote focuses on parental leave and pay and childcare policies. Parental leave is part of employment law, which is not devolved in Great Britain, but is devolved in Northern Ireland. The parental leave section focuses on policy in Great Britain.

Childcare provisions differ in England, Wales, Scotland and Northern Ireland. As childcare is a devolved policy area, the childcare section primarily focuses on policy in England.

This POSTnote does not focus on the child development outcomes of early years education and care. For some information on this, see the POSTnote covering Early Childhood Education and Care (2021). It does not cover in detail social security support provided to parents, for example through the benefit system, or support provided to student parents, though relevant policies are mentioned where relevant.

References to “mothers” and “fathers” in this briefing reflect statutory terminology, reflecting the way data is reported.

General information on topics in this briefing is available on the GOV.UK website. Links to relevant House of Commons Library briefings are also listed at the end of this POSTnote.

* Child to adult ratios were last changed in England in 2023. See: New regulations change childcare ratios in England for more information.

Other stakeholders raise safety concerns about the relaxation of ratios.

Acknowledgements

This briefing was produced in consultation with experts and stakeholders, who are listed at the end of the briefing. The briefing was co-funded by the Arts and Humanities Research Council (AHRC). POST would like to thank everyone who contributed their expertise to this briefing.