Birmingham City Council had announced that from April 2015, PVI providers will be required to follow the Birmingham Business Charter for Social Responsibility, which stipulates that employees must be paid the living wage. Following claims from providers that this would put them out of business, the council has delayed imposing the requirement on them until September 2015.
The Department for Education (DfE) has said it is looking into the council's plan.
A number of nursery owners are campaigning to overturn the local authority's decision or, failing that, have the rate of early education funding increased to reflect their higher costs.
Some of the owners leading the campaign are Tricia Wellings of the Bright Kids group of three settings, and Sarah Presswood, owner of George Perkins Nursery. They have created a petition calling for the early years sector to be exempt from the business charter's living wage stipulation.
Ms Wellings said, 'Of course we feel employees are worth the living wage. The problem is that it would mean paying out more money than is coming in, which is unsustainable.
'I agree that the charter is an admirable aim for Birmingham, but I do not agree with the requirement for us as PVI providers to sign up to it in order to receive our early education funding. We are in a unique situation because we cannot access funding from any other source. Other commercial suppliers can choose what they charge the council.'
Ms Welling said any increase to the funding would be unlikely to cover her increased wage bill, so she would have to raise fees - and withdrawing the setting's funded places would mean the loss of jobs as they are an 'essential part of the nurseries' sustainability'.
Ms Presswood added, 'Birmingham City Council has a statutory duty to use the early education funding to provide places for two-, three and four-year-olds. The whole point behind the guidance issued in September 2013 to local authorities was to remove the conditions imposed on providers to deliver the free places.'
A comment issued by the council earlier this month said, 'The proposed changes will put our relationship with PVI providers on a sounder footing as we will be introducing formal contracts. We recognise that in the broader social care agenda, (the living wage) is an issue, so we will be consulting on how this will be achieved.'
The National Day Nurseries Association (NDNA) has contacted the DfE about the council's plan. Purnima Tanuku, chief executive of the NDNA, said, 'We are waiting for a response. Our view remains that this contravenes the statutory guidance to local authorities, which does not allow them to place such conditions on early years providers.
'Funding is the key to solving this problem, but an increase in the amount paid for free entitlement, while welcome, is not going to solve the issue on its own. It may be that an increase will cover the living wage during those 15 hours, but the knock-on effect for the hours outside that, which parents pay for, would mean a big increase in fees.
'NDNA wants to see a complete overhaul in the way childcare is funded, which will be reflected in the early years manifesto that we will publish next month.'
While other local authorities have implemented a living wage policy, Birmingham is the only council known to be considering placing the condition on early years providers that receive funding for free places. However, Nursery World understands that some local authorities are discussing following suit.
Meanwhile, some nurseries, including Fiveways Playcentre in Brighton, have voluntarily decided to pay the living wage.
And one nursery owner in Worcestershire wrote on Facebook, 'I pay my employees a living wage, they deserve far more. This leaves me, as the registered person/manager, £500 a month to live on, less than £2.50 per hour.'
Vidhya Alakeson, deputy chief executive of the Resolution Foundation, has warned that if the PVI sector has to pay staff the living wage then it could have a knock-on effect on the quality of provision, particularly for independent settings or small nursery chains.
She told Nursery World, 'While the principle of making early years providers pay the living wage is a good one, we wouldn't want to see quality eroded elsewhere. For instance, owners might have to take money from elsewhere, such as their training budget, to pay their staff the increased wage, which would put quality at a standstill.'
She added, 'For large employers with a chain of nurseries, it won't be a problem as they make a profit, but for other, smaller providers that currently pay half or fewer than half of their staff less than the living wage, it will be a problem.
'We all want to see a better-quality workforce, which increased pay will achieve, along with helping to retain staff but, if Birmingham isn't careful, it could end up with fewer places for two-, three and four-year-olds in disadvantaged areas.'
Ms Alakeson went on to suggest that one option for Birmingham City Council could be to follow in the footsteps of Islington and Southwark Councils, which require homecare services to follow the Unison Care Charter and pay all staff the living wage, but have increased the funding that services receive.
Case study: Cotton Tails Day Nursery in Birmingham
Nicola Cotton, owner of Cotton Tails Nursery, a group of three settings, two of which are rated outstanding, claims it would cost her an extra £160,000 a year to pay all her staff the living wage, leading to an increase in fees.
She said, 'While I agree to fair pay, I also need to consider the wider implications. A salary is not based on a simple calculation and what the business can afford, it also has to accommodate factors such as ability, professional status, experience, skills and length of service. These factors create a salary hierarchy.
'To increase my employees' salaries to meet the living wage would mean my whole company pay scale would need to be reviewed and, ultimately, increased.
'The only income we receive is from parents. Some of my employees are also parents, and to raise their salary would mean an increase in nursery fees, which would be counterproductive.'
Ms Cotton went on to say that one of her nurseries relies heavily on funded hours and, as many of the children who attend are from disadvantaged families, she said it is vitally important there is good-quality childcare provision available in the area.
'We lose out substantially when children attend just for the 15 free hours, as the rate of £3.59 of funding per hour is insufficient. For a number of years, Cotton Tails has been able to carry the loss as the three settings can balance each other out in terms of cash flow. However, smaller nurseries do not have this option.
'If the council insists on making us adhere to the principles of this charter, there will be more paperwork and more time consumed trying to meet all the requirements.
'I would like to know how the council intends to dictate to the private sector how they should run their businesses.'
Living Wage vs Minimum Wage
The living wage in London is £8.80 per hour and £7.65 for the rest of the country. It is calculated according to the basic cost of living.
As of January this year, 103 councils had signed up to a living wage policy.
The National Minimum Wage for adults aged 21 and over is £6.31 per hour, increasing to £6.50 in October.
For 18- to 20-year-olds, it is £5.03.
It is the Low Pay Commission that makes annual recommendations to the Government on the setting of the Minimum Wage.
It is a criminal offence not to pay employees at least the Minimum Wage.