For a new report, Handle with care, the business organisation carried out detailed interviews with providers throughout the country to gauge the impact of the 30 hours scheme on small providers’ businesses, and found that many are struggling with rising and unsustainable business costs as a result of the scheme.
Small childcare providers in particular are bearing the brunt of rises to business rates, operating costs and staff wages.
Businesses reported a significant shortfall between the amount of local authority funding they received for the 30 hours, and the fees that the provider recoups from parents, forcing many to supplement by introducing or increasing the cost of ‘extras’ like nappies or a cooked lunch, or per session of unfunded hours.
Recent increases to the National Living Wage and employer contributions to pensions auto-enrolment are further exacerbating this shortfall, putting a halt to investment and leaving nursery owners reconsidering their future.
The FSB is calling on the Government to urgently review the funding rates and follow this with annual evaluations to reflect the changes to the cost of the business.
To help nurseries cope with cost pressures, it says that the Government should create and fully-fund a new 100 per cent business rate relief scheme for childcare providers in England, which would recognise the cost pressures on the sector.
Since 1 April, nurseries in Scotland have been exempt from paying business rates under a new scheme introduced by the Scottish government.
The report says, ‘Small, single-site providers with limited scale economies make up the majority of the 89,000 providers of childcare in England.
‘As such, ensuring the 30 hours free policy meets providers’ needs is essential to sustaining a well-functioning childcare system that benefits the economy and provides parents with affordable, high-quality childcare that allows them to balance their jobs and family lives.’
The report draws on interviews with nine small childcare providers, including pre-schools, nurseries and childminders, currently offering the 30 hours in Essex in Dorset, Essex, Greater Manchester, Oxfordshire, East Anglia and Wiltshire. Interviewees were asked about the type of childcare provision they offer; the composition of their staff, and their training and qualifications requirements; business costs, including the impact of National Living Wage (NLW) and pension auto-enrolment; and the reasons for their decision to offer the 30 hour free to parents, and the impact of this decision on their business.
The FSB also carried out an expert interview with the Pre-school Learning Alliance for the report.
National chairman Mike Cherry said, ‘The success of the 30 hours free entitlement depends on small childcare providers, which make up the majority of the marketplace, being able to provide an affordable high-quality offer to parents.
‘But many are struggling financially, hit hard by a heady mix of rising business rates, operating costs and staffing costs, driven inadvertently by different ministerial decisions.
'Changes to rates, the National Living Wage and the doubling of employer auto-enrolment pension contributions are now combining to undermine the viability of much of the sector.’
The Government must take action to review funding levels given to local authorities soon, or the situation would get worse and ‘risk small providers closing their doors’.
He added, ‘Like all small firms, many childcare providers are still reeling from last April’s business rates revaluation. On top of utilities, rent and staffing costs, these businesses are trying to deal with huge business rate hikes placing significant pressure on their costs.
‘The Scottish government has already recognised this and introduced much needed rates relief for the sector. It is time for the UK Government to step up and alleviate the pressure on England’s nurseries and pre-schools so they can deliver high-quality childcare.’
The FSB also said that training was an essential but significant cost for providers and called for mandatory free training and continuing professional development to be available and offered at different times so that businesses don’t have to close for the day and lose revenue.
Neil Leitch, chief executive of the Pre-school Learning Alliance, said, ‘This report paints a stark picture of a government policy that has left many small childcare providers struggling to stay afloat.
‘As such, we welcome FSB’s recommendation of business rate relief, a move that would offer at least some respite to providers. That said, as the report makes clear, business rates are just one of several rising costs the sector faces: wages, pensions, insurance, mortgages and rent are just a few other examples of business costs on the increase. Despite this, government has confirmed that early years funding will remain frozen until at least 2020. It is therefore absolutely vital that government looks again at funding levels, as FSB rightly recommends.
‘The fact is Government’s 30 hours sums just don’t add up. Many providers have been left with the stark choice of charging parents to make up the shortfall or face closing their business, while others are dependent on voluntary contributions and fundraising to stay afloat. This is simply no way to run a business and it is unacceptable that so many childcare settings have been put in this impossible position.
‘Until funding rates match the true cost of providing high quality childcare, the government’s flagship policy has little chance of succeeding. It is vital that ministers now face facts and commit to investing what’s needed to ensure the sustainability of the sector in the long term.’
The National Day Nurseries Association has long campaigned for an end to business rates and a petition was launched by nursery owner Sue Johnson on the Parliament petitions website last year.
Purnima Tanuku, chief executive of NDNA, said, 'We welcome this research by FSB which echoes our own findings and those of previous reports.
'With this large body of evidence, it’s time Government listened, acknowledged the problem it has created and addressed it effectively.
'Nurseries in England are only struggling because Government is now their biggest customer - but it isn’t paying the going rate for this service and in many cases, doesn’t pay on time.
'We know many businesses particularly small nurseries have closed their doors and plenty more are facing this possibility. Our annual nursery survey is currently capturing what impact Government policy is having on our nurseries.
'Providers in Scotland - ahead of their expansion to 1140 hours of funded childcare – are being given full business rates relief and more providers in Wales where expansion is also starting to take place are being given enhanced support towards rates.
'If the 30 funded hours policy is to be successful, Government needs to act on these issues to make nurseries exempt from business rates and to pay them a fair hourly rate.'
The Department for Education has been asked for a comment.