Rise to national minimum wage threatens nurseries' survival

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A new report suggests that increases to minimum wage and national living wage rates will see childcare businesses failing and larger firms taking over.


Nurseries are struggling with increases to both the National Minimum Wage and the National Living Wage

The Low Pay Commission’s 2017 report on the National Minimum wage, reveals that childcare employers believe increases to the National Minimum Wage will lead to the closure of some settings, with larger groups ‘filling in the gaps left’.

However, it does acknowledge that increases to the National Minimum Wage and National Living Wage (NLW) are not the only challenges faced by the childcare sector, mentioning the introduction of auto-enrolment pensions and settings being in receipt of Government funding to deliver the 15 and 30 hours.

The LPC is an independent body that advises the Government on setting the National Living Wage and National Minimum Wage rates.

The report is based on previous research on the effects of the introduction of the NLW and responses from 120 employers – a quarter of them in childcare. Other sectors covered in the report include social care, retail and manufacturing.

From next April, both the NLW and NMW will increase. The NLW for employees aged 25 and over will rise to £7.83, the NMW for 21- to 24-year-olds will be £7.38, the NMW for 18- to 20-year-olds will be £5.90, and 16- to 17-year-olds will receive £4.20 an hour. The rate for apprentices will also rise by 20p to £3.70 per hour. By 2020, companies will be required to pay a minimum of £9 an hour for the NLW.

The National Day Nurseries Association (NDNA), which contributed to the report, said that the sector is already seeing more nursery chains growing and swallowing up smaller settings that are less able to meet the challenge of increasing staff wages because of insufficient Government funding and restrictions on staff ratios.

For example, in the last year alone, the largest nursery group in the UK, Busy Bees bought the Treetops chain, along with four of the six family-run Bramleys Nurseries, and several single-site providers.

Mark Traynor, partner at HRC Law, said, ‘There’s no doubt that there is lots of consolidation. Over the last 18 months, the top 10 nursery groups have been adding to their portfolios and purchasing more single sites. There are now fewer small regional groups, while single sites make up 65 per cent of the sector.’

The LPC report also shows that the childcare and domiciliary care sectors have seen the largest reduction in NLW jobs within low-paying occupations in the UK in the last year.

According to the report, in 2016-17, there were 16,000 fewer jobs in domiciliary care and childcare compared to the previous year.

The NDNA said this could be due to the continued decline in the number of childminders or an indicator that settings are increasingly employing younger, cheaper practitioners or reducing their staff levels while keeping to staff: child ratios.

Purnima Tanuku, chief executive of the NDNA, said, ‘These wage increases are obviously good news for our lowest paid workers.

‘However, the childcare sector is particularly badly affected in its ability to meet this obligation because the Government investment in its scheme which offers parents ‘free’ childcare is woefully insufficient.

‘The average nursery gets paid an hourly rate per three- and four-year-old of just £4.37 in England, with similar poor rates paid in Scotland and Wales.

‘Rather than the new rates from April reflecting these increases in staffing costs, they are staying the same for the vast majority of providers and in some cases being decreased.

‘For nurseries, staff wages is their biggest bill so this will have a huge impact on their sustainability. There is no flexibility because providers have to adhere to strict child to adult ratios and also need to maintain differentials in pay for higher qualified practitioners.

‘If the Government requires all employers including nurseries to pay workers these fair wages, they need to make sure this is reflected in the hourly rates paid to the sector for funded childcare.’

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