Nursery Management: Funding - Make or break

By Hannah Crown
Monday, March 16, 2020

The sector is in crisis mode, with widespread underfunding, a workforce problem and rising costs. Just how bad will it become before it gets better? By Hannah Crown

Stormy weather
Stormy weather

Five years ago, the talk was almost exclusively about what is best for children, but the mood has changed,’ says Neil Leitch, chief executive of the Early Years Alliance. ‘And that’s because for many settings the bank manager is knocking. We have the opportunity to shape the life skills of children for generations in this sector, that’s what’s important, yet discussions about the needs of children run the risk of being secondary to the focus on business survival, and that’s not a place providers want to be.

‘The simple fact is that without money, you can’t deliver anything.’

The long-term underfunding of the early years sector (which Ceeda estimates will be £824 million in 2020/21) is prompting leaders to talk about an ‘existential crisis’. Paintpots owner and men in childcare campaigner David Wright says, ‘So many providers are currently saying they have no idea how they will survive once the minimum wage increase comes into effect. The £66 million increase committed by the Government [at the last Spending Review] is frankly insulting, as is the continued intransigence on their part to admit there is any issue when so many early years providers are struggling, with many closing.

‘The maths doesn’t work, but the Government has nothing to say on the matter. In my opinion, its attitude is immoral. It is not too strong to describe this as an existential crisis for the sector.’

Purnima Tanuku, the NDNA’s chief executive, added that the end of March would be a ‘key point. We know a lot of providers really do their best to remain open to the end of a term so they aren’t letting down families and children. However, this can often be at their personal cost.’

Yet last month Mr Leitch told a conference, ‘I have heard officials say to me, until the sector collapses you are not likely to get the investment that is needed’. Mr Leitch told Nursery World, ‘Government ministers and officials are intelligent people. They’ve seen the evidence on underfunding and they can’t dispute it – so instead they ignore the situation, and leave the sector to work it out.’

If more evidence on underfunding won't crack it, then what will?

Crunch time?

Before we try to answer that question, it's important to try to objectively gauge if the sector is close to collapse, and what kind of collapse we are talking about. Overall, there were nearly one in five fewer childcare providers (2 per cent fewer PVI settings, and a large 29 per cent drop in childminders) in August 2018 than in August 2012, according to Ofsted data.

Yet while more settings have been closing than opening, the number of places remained stable between 2012 and 2018, a fact often referred to by the Department for Education.

This indicates a trend for consolidation, with more large providers offering more places. Single-site operators still make up more than half of all settings though, so as Christie & Co’s Courteney Donaldson says, ‘Investors are looking at the UK and see a significant consolidation opportunity. There is still no sign of that slowing down.’

Looking at the latest Ofsted data, from March to August 2019, we find every region in England seeing a net loss of settings, from seven fewer settings in the East of England to 81 in the South East. The North East, South West and Yorkshire and the Humber had net decreases in both places and the number of settings. The largest increases in places were in the relatively affluent London and the South West, with net gains of 3,839 and 3,620 respectively.

Analysis by NDNA from August found that nursery closures rocketed by 153 per cent since the 30 hours began. In August 2019, almost half of the closures – 46 per cent – were in areas with the lowest funding rate from central Government (£4.30 per child per hour).

Ms Tanuku says, ‘Our data suggests there are more closures in deprived areas or where the funding rates from government are at the lowest.’

In addition, the Early Years Alliance, which operates as a charity in deprived areas, closed 28 settings last year – 25 per cent of its portfolio. ‘There will be more consolidation as a result of financial pressures and we will sadly see more settings serving communities in areas of deprivation close as they become financially exposed,’ says Mr Leitch. ‘And so while we might see new nurseries opening in more affluent neighbourhoods, those children needing additional support in areas of deprivation are at greater risk.’

Of course, funding is not the only pressure. Some settings are closing not because of funding or occupancy problems but simply because they can’t recruit any staff, Mr Leitch says.

According to the Low Pay Commission, the early years is among the four lowest-paying occupations in the country, along with hair and beauty, cleaning and maintenance, and hospitality. And allthough increases to the national minimum wage have raised the wages of the lowest paid, the proportion of early years staff being paid the minimum rose from 9 per cent in 2015 to 16 per cent this year, an indication of what a low-paid sector it really is.

‘We don’t have a single tangible element within early years that demonstrates that we are truly valued,’ says Mr Leitch. ‘Pay, terms and conditions, professional status, you name it – compared to other professionals, we get nothing.’

What will happen next?

How bad does it have to get before the powers that be start taking notice? Looking at other sectors experiencing similar problems could provide clues.

The Low Pay Commission’s 2019 annual report found that adult social care was ‘in crisis’ and, strikingly, ‘providers and their representatives lamented that the rates paid by local authorities for all types of care do not keep up with increases in the National Living Wage’.

A report from the Health Foundation in August 2019 found funding rates ‘affected the ability of social care providers to deliver high quality services’. It said, ‘The amount local authorities are able to pay towards somebody’s care in care homes is less than it costs to provide it. Many social care providers are handing back their contracts. And some are going bankrupt.’ It went on to say that ‘four in five social care services are judged “good” or “outstanding” by the Care Quality Commission’ and ‘meanwhile, social care faces a staffing crisis’.

David Phillips, associate director at the Institute for Fiscal Studies, says some gains have been made by the sector and ‘the experience of social care suggests that the early years sector could benefit from good organisation, and a collective voice’.

Money was found for social care in 2015, 2017, 2018 and 2019, he says, ‘because of evident problems. Rising political concern, and organised representations from the sector, also played a role.

‘Local government would like to see longer-term financing commitments, but announcing new money for social care generates good headlines – so central Government may be incentivised to drip short-term, smaller-scale funding into the sector as long as things don’t get too bad in the interim.

‘It’s useful to understand that more funding will come after significant signs of strain or unease among the public.’

The early years sector did get a significant funding increase in 2017, when the DfE announced a minimum of £4.30 per hour for three- and four-year-olds, Christine Farquharson, senior research economist at IFS adds. This ‘was driven, in part, by a need to encourage providers to offer the new 30-hour entitlement’.

A sector united?

Unsurprisingly, campaigning has reached a pitch recently, with a sector-crowdfunded Times advert to explain the funding situation to parents, and talk of a march on Parliament and even a parent-facing PR campaign.

Jo Verrill, managing director of Ceeda, whose poll on how to fund the ‘free’ entitlements garnered 1,200 responses, says she is ‘exploring next steps’ and called on Government for a ‘meaningful’ childcare policy review. Hopes are also being directed towards a new workforce ‘commissioning’ group, which was announced by CACHE, the awarding body behind the successful Save Our Early Years campaign on reinstating functional skills for Level 3 Early Years Educator candidates. One aim is to hold evidence sessions and pull together existing research to publish a workforce strategy, which will cover training, pay, recruitment and the role of the sector. All the key sector bodies, EYA, NDNA, PACEY, Voice the Union, and others, are involved.

‘Together we can facilitate one place where all of the sector is represented,’ says Cache executive director Julie Hyde.

‘There has been a significant amount of talking and an immense amount of research done within the sector. We need to pull together all the evidence to support and inform in a constructive way.

‘This is making sure we don’t lose sight of what is important: sustainable high-quality childcare for children, and families. This is not about profitability: providers are closing and that is because, in some instances, it is not viable to continue.’

For providers on the front line, it is not just more cash that is important. Champagne Nurseries on Lemonade Funding’s Jo Morris Golds says, ‘We need in legislation to revise the wording around “voluntary” contributions, or the number of “free” hours offered. This would protect the children of low- or no-income households, still enabling them to access high-quality early years provision, but it would mean settings were sustainable, which in turn increases parental choice, meets local authority sufficiency duties and allows the Government to say that it is delivering genuinely free childcare, not “free” childcare that is heavily subsidised by fee-paying parents and struggling providers.’

A spokesman said the DfE was ‘planning to invest over £3.6 billion in early education entitlements in 2020-21.’

The DfE said funding was fair and transparent, and takes disadvantage into account. ‘We recognise however, the need to keep our evidence base on costs up-to-date and we continue to monitor the provider market closely through a range of research projects,’ it added.

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