Many providers also report that they have little choice but to pass on the shortfall in funding to parents.
The CEEDA research is published during the Early Years Alliance Fair Future Funding action week, when dozens of MPs are visiting childcare providers in England to witness first-hand the impact of underfunding on the sector.
The survey found that almost one in five childcare providers (18 per cent) now require parents to pay for extra hours alongside the Government’s 30-hour funded entitlement (18 per cent).
For parents using the universal 15 hours for three- and four-year-olds, this is the case for 17 per cent of providers.
Moreover, 12 per cent of nurseries and pre-schools require parents accessing the 15-hour childcare entitlement for disadvantaged two-year-olds to pay for extra hours, leading to additional costs that the most disadvantaged families may struggle to afford.
The research was commissioned by independent research agency Ceeda with its About Early Years panel. Delivery costs were assessed for 270 day nurseries and pre-schools and 86 childminders on the panel.
It found that 17 per cent of childcare providers in the most deprived areas of England anticipate that they will close within the next 12 months compared to 8 per cent of those in the most affluent areas.
The report, which combines an in-depth analysis of provider’s opinions and financial information with government data, also revealed that the early years funding shortfall is increasing at an alarming rate, rising by almost £50 million in the last year to £662 million.
The impact of the funding shortfall is being felt across the country with almost half of providers saying they are forced to make savings by cutting back on learning resources (43 per cent). Nearly one in five said they have lowered the quality of food they give to children (19 per cent).
Some providers are also limiting the number of funded places they offer, with over one in ten (12 per cent) capping the places for disadvantaged two-year-olds and 15 per cent capping the number of 30-hour funded places.
- Two-year-olds: Average cost of delivering a two-year-old place is £7.22 per hour, up 4.6 per cent on 2018. The gap between the cost of delivery and the average funding rate of £5.27 is 37 per cent. The average funding rate has risen by £0.07 since 2013.
- Three- and four-year-olds: Average cost is £5.36 per hour, rising by 5.5 per cent since 2018.The gap between average costs and the hourly funding rate of £4.46 is 20 per cent. The average funding rate has risen by £0.54 since 2013.
- Childminders: When labour is costed on the basis of comparable nursery pay rates (matched by location and qualification level) the average delivery cost in childminder settings is estimated at £5.10 per hour.
Commenting on the new research, Neil Leitch, chief executive of the Early Years Alliance, said, ‘How much bigger does the early years funding shortfall have to grow before the Government acts? Thousands of providers have closed, many more are charging for things that were previously free and now we see the impact this is likely to have on the poorest children in the country.
‘We’ve heard countless times from ministers about the importance of social mobility and yet the evidence is that their policies are having the opposite effect. This report is just the latest in a growing list of studies, including several commissioned by the Department for Education, revealing government childcare policy is failing, even on its own terms.
‘This is what a sector in crisis looks like. Providers are straining to deliver quality childcare on funding levels set in 2015, leaving them forced to choose between reducing quality and charging ever higher fees or closing their doors. There’s only one conclusion to draw from this: the government can no longer afford to underfund the early years. It must invest properly in its flagship childcare schemes and review the funding annually to make sure it stays in line with rising costs.’
Dr Jo Verrill, managing director of Ceeda, said, ‘These findings tell an all too familiar story of rising costs and widening funding gaps. Statutory pay rises, increased pensions contributions and rising business rates are fuelling provider costs, whilst funding rates remain fixed. Childcare providers have little choice but to try a range of strategies to recoup or limit losses, from caps on funded places, to cuts in staffing levels. Whilst a logical response to financial pressures, these actions have important consequences, particularly for those families least able to pay for early education.’
Case study - Kate Wright, owner, Little Buddies Pre-school
The setting is based on the Whitton estate near Kirkley in Lowestoft, Suffolk, the only setting in Lowestoft in an area of disadvantage, within the 10 per cent most deprived in England. Since the funding changed in 2017, they have been very close to closure. Kate has Early Years Professional Status and employs three other graduates. Despite their qualifications, she is unable to pay any of the staff anything more than the National Living Wage.
Suffolk County Council used to provide deprivation funding of £85 a term per child, which the majority of children were accessing, but funding cuts from central government, mean funding has drastically reduced to around £30 a term. The local authority also used to provide block funding of £1,100 a term to help settings not on school sites pay rent etc. but this has also been scrapped.
‘Every penny has to be scrutinised. Where we struggle the most is not having the extra member of staff for children with additional needs,’ says Kate.
‘Disadvantaged children are often deprived of parental input, often due to parents having issues such as learning difficulties, addictions, unstable relationships and this means the majority of children who attend our nursery have greater personal, emotional and social needs, meaning a higher ratio of staff to meet their needs.
'We have also found that children are in nappies longer and we tend to be the ones who initiate toilet training and carry it out. So, it can take one- and-a-half hours for one staff member each session toileting and changing nappies and clothes.
‘With a lack of funding I have had to cut staffing levels and this then impacts on the time staff have to plan and assess (not being able to afford additional hours to do so and not having enough staff to do it during session) putting additional pressure on me to do it all in my own time.
‘Before the cuts I kept my fees incredibly low, so low-income families could afford additional hours but now I have been forced to put my fees up to the same level as the funding and this means not many families can afford additional hours.
‘I have no spare money to subsidise trips or outings or extra sessions for those who desperately need it, and in the long run it’s the children who then miss out.'
Kate Wright, Little Buddies Pre-School
Kate says she would like to see the Government increase funding for deprivation, but also make money available for children who need social care or family support, and those on CAF.
If she has to attend any meetings with social workers she has to pay for the travel costs out of her own pocket, which in some cases are in different local authority areas.
‘There are more children with behavioural issues, child protection cases. Without additional staff it makes it very difficult to support families. Any Education Health Care (EHC) referrals and paperwork I need to do in my own time and weekends.
‘Despite of all the hardships, the stress and worry, not only financially but about the children, if I can help one child achieve or help to make a family’s life a little easier, then it is all worthwhile.
‘I’ve been struggling for two years. And have no intention of giving up without a fight.’
The National Day Nurseries Association (NDNA) said the findings echoed their own research, which has found closures increasing since the introduction of 30-hour childcare for working parents.
Chief executive Purnima Tanuku said, 'The Government just seems to be ignoring these warnings. We have been telling ministers that the 15 and 30 hours childcare schemes are not free either to parents or providers. In more deprived areas, nurseries are less likely to survive because they cannot make up the shortfall through additional paid-for hours or by asking for voluntary charges from parents who can’t afford them.
'Each closure causes distress and upheaval for children, families, staff and their communities.
'This is a crisis and must be addressed immediately with adequate investment. Offering funded hours to children of working parents is hampering measures to improve social mobility in England. And yet these are the families this policy was brought in to support. It makes no sense at all.'
Tracy Brabin MP, Labour’s shadow early years minister, said, 'Labour has warned for years that the impact of underfunding childcare and early years policies would be felt most keenly by disadvantaged families, and this report unfortunately shows we were right.
'If the Government wants to be taken seriously on social mobility, they must make sure that all children and families have access to high-quality early years education and experienced practitioners. But their policies and funding cuts are hurting providers in the poorest areas the hardest.'
A Department for Education spokesperson said, ‘We want every child to have the best start in life, which is why we are planning to spend around £3.5 billion on our early education entitlements this year alone – more than any previous Government.
‘The Government provides a significant package of childcare to parents and carers, including our 30 hours offer for working parents of three and four-year-olds, which benefited over 340,000 children in the first year of delivery. Low income families also have access to support through Universal Credit, which can cover up to 85% of childcare costs.
‘Our Early Years National Funding Formula allocates our funding to local authorities fairly and transparently. We recognise 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.’