Nurseries are struggling to pay staff wages, deal with the burden of extra paperwork from the 30 hours offer and Tax-Free Childcare, and make a surplus or profit.
These are the top three challenges cited by respondents to the National Day Nurseries Association’s 2018 Nursery Survey England, which warns that one in five nurseries is set to make a loss and that many fear closure. Indeed, the report finds that closures are up by 47 per cent on last year.
The NDNA’s report said, ‘The way the Government funds the 30 hours “free” childcare is not up to scratch. Outdated and complex funding arrangements are putting huge strains on nurseries which have unintended consequences for the sector. Whether this is nurseries having to restrict the number of places offered to parents, hold back from hiring qualified staff, or charge extra for services, nurseries are having to alter their services in a way neither they nor parents want.’
According to the survey, the majority of nurseries (90 per cent) are providing funded places for three- and four-year-olds; however, a similar number (87 per cent) say the funding does not cover their costs – this is up from 85 per cent in last year’s survey.
Nurseries also say they feel under pressure to offer the 30 hours in order not to lose out on vital business.
While the survey shows there has been a rise in the average hourly funding rate – £4.25 in 2018, compared with £3.94 in 2017 – the average shortfall per child per hour has risen to £1.90 per child; this is equivalent to £2,166 annually for 30 hours a week during term-time.
This is more than double the yearly shortfall from the 2017 survey, before 30 hours came in, when the average hourly shortfall was £1.68, or £958 a year.
While most nurseries (89 per cent) are delivering places for disadvantaged two-year-olds, the findings suggest that an increasing number are deciding to opt out of the scheme – 11 per cent, up from 9 per cent last year.
There are also indications that those that continue to offer places for twos are cutting the number of places they offer – 14 per cent of those surveyed said they are intending to do so.
The hourly rate for twos does not cover the costs for 54 per cent of nurseries, the same as in 2017, but the average hourly rate has fallen to £4.99, down from £5.04 last year.
Respondents said a cut in funded two-year-old places was partly a result of the 30 hours policy. The NDNA is warning that this may harm the Government’s social mobility agenda, with disadvantaged children who need early education the most unable to access it.
The NDNA says a new challenge is emerging in the sector – the significant administration involved in supporting parents with the 30 hours offer and Tax-Free Childcare, which is taking qualified professionals away from their role.
More frontline staff are having to devote time to helping parents find their way around ‘a complex and often unreliable system’, which on average respondents said involves staff spending seven hours a week administering the scheme, while for one in four settings it takes 10 hours or more.
The overwhelming majority of nurseries (85 per cent) said the extra admin was the most significant challenge with delivering the schemes. After this, 58 per cent said managing the complexity of the system was the biggest challenge, and 44 per cent said their main difficulty was reconciling payments with local authorities.
Almost a third of respondents reported receiving late payments from their local authority, with the average waiting time being four weeks. One in three has had to wait more than four weeks.
The NDNA said local authorities should pay nurseries four weeks in advance to support providers’ cashflow and ensure their sustainability.
Staff wages were cited by nurseries as their biggest challenge this year, with increases to the National Minimum and National Living Wage putting even more pressure on costs.
The NDNA’s Workforce Survey, published in March, found that nurseries are losing staff to public sector jobs because of better pay and conditions.
As well as the cost of replacing staff, with high agency fees in the short term, employers are also more cautious about recruitment, keeping children on waiting lists until there are sufficient staff. Nurseries told the NDNA this was due to tighter income restraints that have resulted from funding shortfalls.
The NDNA says that, as set out in the Department for Education’s Early years workforce strategy, the Government must provide:
Careers advice that attracts new recruits, and financial support to do this.
Better funding for qualifications at Levels 2 and 3 for all ages to support continuing professional development.
Adequate funding to enable settings to retain and develop staff.
Earlier diagnosis and adequate funding to support children with special educational needs and disabilities (SEND).
Fees and charges
More than half of nurseries surveyed plan to increase fees to cover their costs. While the overall number that plan to do so is down on last year – 71 per cent compared with 83 per cent – fees are set to rise by 4.6 per cent on average, up slightly from 4.5 per cent last year.
Most nurseries (60 per cent) are charging parents for extras for their child’s funded place – 25 per cent between £5 and £10 a day, and 22 per cent up to £5 a day. This can average around £50 a week for some parents.
More than half of nurseries report increases to business rates, with an average rise of 14.5 per cent. Respondents told the NDNA that being exempt from business rates would have the second-biggest impact on their sustainability, after an increase in funding in line with costs.
More nurseries this year expect to make a loss – 19 per cent, compared with 17 per cent last year. The proportion expecting to make a profit or surplus remains the same as in 2017 – 43 per cent.
Plans for 30 hours
Almost a third (31 per cent) said they plan to limit places, while 6 per cent want to opt out of the scheme. The majority (63 per cent) will continue offering the scheme, with many charging parents for extras, limiting places and increasing fees.
Increase the hourly rate for funded two-, three- and four-year-olds year on year
Funding should be increased in line with the National Living Wage and the cost of living. Nurseries said funding that falls short of delivery costs is the greatest risk to their sustainability.
Exempt nurseries in England from business rates
Nurseries in Scotland have been exempt from business rates since 1 April, and rate relief has been extended to many childcare providers in Wales. The NDNA urged the Government to introduce a similar scheme in England so nurseries won’t have to pass this cost on to parents via higher fees.
All UK governments to bring in a ‘childcare passport’
The childcare and early education funding system should be completely overhauled. A childcare passport would be a single parent-held account, bringing together all childcare funding schemes, including: funded early years entitlements, Tax-Free Childcare, childcare vouchers and tax credits/Universal Credit.