- Budget: Total £510 million for rise in early years entitlement funding over next three financial years
- Predicted increase of 20p per hour for three- and four-year-olds from
April 2022 - But providers raise concerns over impact of rising costs, including national minimum wage rises
While the headline-grabbing figures of millions of pounds for an increase to early years funding rates from next April sound impressive, it remains to be seen how much of a difference it will really make to providers after years of underfunding and the fallout from the pandemic.
Sector organisations were quick to welcome the funding rise for three- and four-year-old places – which is substantially more than in previous years – but the real question of course is whether the increase will be enough to keep early years settings afloat.
The final figures confirmed by children and families minister Will Quince were more than initially announced by the Chancellor in his Budget speech. The figures were subsequently clarified by Quince to be £160 million for 2022-23, £180 million in 2023-24 and £170 million in 2024-25.
However, the actual rates that early years settings can expect to receive from local authorities for the funded hours for two-, three- and four-year-olds from next April are not yet known, and are not likely to be confirmed until at least December.
Providers have also already raised concerns about the impact of the ‘drastic hike’ to the minimum and national living wage, national insurance and reinstatement of business rates to providers – also due to come into force from April. These issues also need to be seen in the context of other rising costs, such as energy bills, food, consumables and pensions.
The 2022 increase
So, what does £160 million in 2022-23, to increase the hourly rate paid to childcare providers, translate into per child per hour in an early years setting?
While it is important to stress that the funding rates have not yet been confirmed, sector organisations and providers have attempted to calculate what the rates would mean in practice by looking at previous Government allocations.
According to the National Day Nurseries Association (NDNA) and the Early Years Alliance, £160 million for 2022/23 is likely to mean an increase of 20p per hour for the three- and four-year-old funding.
Purnima Tanuku, chief executive of the NDNA, said,
‘As always with these announcements, we have the big picture figures, but what providers rightly want to know is how this will affect hourly rates in their area.
‘The devil will be in the detail once local-authority-level information is published. However, we have calculated that the overall budget for the early years entitlement will increase by about 4.5 per cent. This could mean an extra 20p per hour on the lowest funding rates.’
Neil Leitch, chief executive of the Early Years Alliance, also said, ‘While we are still waiting for details, based on recent investments, £160 million for 2022/23 is likely to come to something like 20p per child per hour for next year, meaning it will do little to plug the gap in funding, even before accounting for inflation.
‘With staffing costs about to increase drastically, settings are likely to find that little has changed from the situation they are in now.’
He added, ‘Half a million pounds over the next few years may sound substantial, but years of underfunding of the sector has left a gap between the current rate of early entitlement funding and the Government’s own estimates of the cost of delivering a place at around £2.60 per child per hour for 2020/21.
‘Staffing accounts for 75 per cent of the costs on average for early years businesses, so the drastic hike in the national living and national minimum wages due in April, combined with rising National Insurance payments, will be of huge concern to early years employers.’
‘Still isn’t enough’
This chimes with nursery owner Philip Siddell’s (right) calculations.
The director of Humpty Dumpty Day Nurseries and Pre-Schools in Staffordshire says that he anticipates a rise of around 21p an hour for settings from April for the funded three- and four-year-old offer.
Last year’s increase was £44 million and was equivalent to a rise of 6p per child per hour. Scaling that up, £160 million is the equivalent of an extra 21p
per hour.
Across the four nurseries – three full-time and one term-time only – there are places for 316 children. The nursery had completed an extension to its Lichfield setting prior to the pandemic, enabling it to offer 200 places, up from 140, and is doing well with strong occupancy.
The group also operates seven before- and after-school clubs, employing around 150 people, some part-time.
Siddell said that the expected figure for his nursery group’s own wage cost increases for the next financial year would be in the region of £120,000.
The nursery group’s wage costs are about £2.2 million a year on a turnover of £3.9 million.
‘My major concern is what is the impact of the latest funding, Government wage legislation and NI and business rates restarting on smaller nurseries. Many are quite small, 32-50 places, and would only have a limited number of staff on just over the minimum wage.
‘Owners have not been able to earn very much at all. Once they have kept up with the national wage legislation, there is not much left over for themselves.
‘Government’s own research shows that half of providers are already operating around or below break-even.’
He added, ‘I am concerned for smaller nurseries. I don’t think you can make a private children’s day nursery work with fewer than 50 children. For larger nurseries – and for chains – there is a spreading of fixed costs. For smaller nurseries, the proportion of wage costs as a proportion of all costs is about 75 per cent because of wage legislation and keeping differentials between staff. For a business like ours, it’s around 60 per cent.
‘We don’t know about the funding rates yet, it’s likely to be early December. We don’t know about the increase for two-year-olds, but it’s a much smaller part [of a nursery’s business].
‘It sounds like a lot of money, but it’s a big figure that still isn’t enough. There is a continuing divergence between the costs nurseries are facing and the funding they get. The NI rise will have a big impact. It’s a 1.25 per cent rise in NI across the board, which makes a lot of difference.’
Table shows monetary and percentage increase in wage cost as at April 2022 for practitioners currently on £9 per hour (40-hour week, monthly pay). Source: Humpty Dumpty Day Nurseries and Pre-Schools
‘Not sustainable’
Amelia Joyner is pre-school leader of Cullompton Pre School, which offers 36 places a day. The pre-school has 72 children on roll and has been full since the second week of September, but still stands to make a loss.
‘We have 12 two-year-olds and 24 three- to four-year-olds and we have more wanting to come than we can offer places to.
‘Staff wise I have 12, 11 at Level 3 or above and one taking her course now. We will have to find an extra £34 a day to pay the increase – we are full and have no way on increasing our income and the Government won’t fund an increase to our early years funding to cover the increase, so we will now be losing £34 a day – this is a loss of over £6,000 a year added to our current projected loss and last year’s loss; this is not sustainable.’
Other pre-schools are also worried and say they will need to put their fees up for parents.
Charley Calvert, director and nursery manager of Charley’s Angels in Huddersfield, said she will have to increase her fees from £49 to £52.50 for under-threes and from £48 to £51 for over-threes to ‘even out the cost’ of the rises to the minimum
wage rates.
‘I already pay well above NLW so the proposed increases mean that everyone will need an increase. All senior staff will need an increase reflective of their role in comparison to the new NLW being the basic rate.
‘The financial difference between managers, seniors and practitioners will not be wide enough, so I could lose more quality workers to the ever-more attractive “easier job” that pays the same if not more.’
Rachel Pullen, chair of St John’s Pre-school, Crowborough, a small, charity-run pre-school, is already struggling to keep
afloat and relies heavily on fundraising and donations to keep the setting running.
The rise to the minimum and NLW wage will have ‘a significantly detrimental effect’.
‘With an already packed session sheet and the majority of our spaces taken by Government-funded three-plus year-olds, we’re at a loss as to know how to deal with this. Without Government support we’re seriously going to have to look at the future of our pre-school, which has been a staple of the community for many years.’
Tanuku said, ‘Our members say their number-one concern is recruiting and retaining the staff at the levels they need but they can only keep pace with rising wage pressures if Government funding keeps up.’
She added that there are also ‘weaknesses’ in the way funding is distributed, with NDNA’s latest underspends report finding £62 million of early years funding left underspent at the end of the financial year 2019/20. ‘The Government must make sure any increases in rates are passed through to providers.’
Neil Leitch added, ‘While investments in CPD, and some increase in entitlement funding, are both welcome, what is desperately needed is a proper plan for putting this sector back on a sustainable footing.
‘Many nurseries, pre-schools and childminders are already on the brink of closure, so we also urge the Government to look at what it can do right now to ensure those providers can even make it through to the rate increase in April.’
Business rates
Nurseries are also facing the reintroduction of full business rates bills from April.
The NDNA says the average nursery will have to find more than £12,000 for this.
‘The Government are giving with one hand but taking with the other,’ said Tanuku. ‘Many may see that these extra costs wipe out, or even exceed, the extra money promised, putting the sector back to square one.’
Children with SEND
Catherine McLeod, chief executive of Dingley’s Promise, a charity that works specifically with children with SEND in the early years, is highlighting the potential danger of this vulnerable group’s needs not being met by the Government’s other headline Budget announcement of £500 million to support families with young children.
‘Families tell us that one of the most frustrating things for them is to be offered “parenting advice” and “training”, when in fact what they want is the right assessment and support services for their children, so that they can develop to reach their full potential. Waiting lists for assessments are currently months or years rather than the target of weeks. In many cases, it is not until children are in school that their needs are properly assessed and addressed.’
Meanwhile, funding to create 30,000 more places for children with SEND is targeted at schools, ‘neglecting the proven lack of spaces’ for early years children with SEND. McLeod said, ‘The long-term impact of children with SEND in the early years falling through the cracks of the new investment programmes is that their life outcomes will be lower, as they will miss vital early interventions.’
