Over half of nurseries say they cannot afford to offer 30 hours of free childcare

The majority of nurseries across England have admitted to being unsure or unlikely to commit to extending the number of free hours they offer, despite the Government’s pledge to give parents 30 free childcare hours a week.

Research by the National Day Nurseries Association (NDNA) for its report Annual Nursery Survey 2016, has found less than half (45 per cent) of nurseries in England are likely to get involved in the Government’s scheme.

The Government’s plan to offer 30 hours free childcare per week, for working parents of three and four-year-olds in September 2017, is a doubling of the existing 15 hours a week of free hours available to three and four-year-olds and eligible two-year-olds.

Unaffordable for nurseries

Nurseries say the chief barrier to committing to the Government’s scheme is inadequate funding. Nurseries are currently offering parents 15 hours free childcare but this results in an average annual loss of £34,000 per nursery.

The nurseries absorb losses by making parents pay more if their child spends over 15 hours at the nursery in order to plug a Government funding gap. The survey reveals this funding gap is now the highest ever at £1.68 per hour on average per three and four-year-old place.

Parents may struggle to find places

The NDNA is warning that many tens of thousands of families eager to take up the Government’s offer of more free childcare may struggle to find places unless action is taken.

NDNA chief executive, Purnima Tanuku said: “The nursery sector is fully behind the principle of more support for parents. But serious funding shortfalls stand in the way of nurseries getting on board, despite their desire to help families with free childcare.

“The nursery sector is reluctant to commit to offering more free hours when they already make a significant annual loss – an average of £34,000 per nursery – on the funded places they currently provide.

“We all want to make 30 free hours childcare workable and sustainable. To achieve this, the sums have to add up. Urgent steps must now be taken to bring about the funding reform promised by the Government, so an economically viable hourly rate for high-quality childcare reaches the front line."

According to Department for Education figures, nurseries deliver free funded places for 96 per cent of disadvantaged two-year-olds and 64 per cent of three and four-year-olds. But 89 per cent of nurseries who responded to the survey said they are making a loss on these funded places.

The views of nursery managers and owners across the country were revealed in the NDNA Annual Nursery Survey, which received responses from 485 English nurseries via an online poll.

Inadequate funding

According to the survey, only a third of three and four-year-olds currently attend nursery for more than 30 hours. Department for Education statistics show the average child goes to a private sector nursery for 20 hours per week. The biggest risk of 30 free hours is that nurseries lose the ability to charge a viable rate and balance their books.

Julia Margo, chief executive at the Family and Childcare Trust, backed the report, saying: “The availability of expanded free early education for three and four year olds is absolutely crucial to helping parents who work or want to move back into work.

“In the short-term, the Government needs to make sure childcare providers get adequate funding so they are able to offer these extra hours. But without more radical reforms, the childcare system will not meet the needs of too many parents, children, childcare providers, employers, or the wider economy.”

Ringfenced

Courteney Donaldson, head of Childcare at Christie & Co would like to see funding ringfenced, saying: “From working with our clients, we have seen that the biggest challenge that many childcare providers face is that not all of the funding currently provided by central Government makes it through to the front line.

“While local authorities administer funds associated with the scheme, not all authorities pass on all of the funds they receive to providers currently delivering the current 15 hour entitlement. When the 30 hours scheme is implemented, that funding gap could potentially widen unless funding is ringfenced.”

This year, 83 per cent of nurseries plan to increase fees for parents, with the average rise expected to be four per cent. Last year, fees increased by an average of three per cent. Nurseries said this is due to the pressures of the wage bill, driven by the introduction of the National Living Wage in April 2016 and the staging of pension auto-enrolment.

Burden of National Living Wage

The introduction of the National Living Wage (NLW) this April, has made the rise of wages the biggest issue facing nurseries. The survey revealed nurseries will struggle with their payrolls when the NLW is introduced at £7.20 per hour for over 25s. The NLW will raise the average payroll by 10 per cent.

Only 30 per cent of nursery settings are already paying all or most staff the NLW. Some 36 per cent of nurseries are concerned that if the funding were not sufficient, they could be driven to appoint younger, less qualified staff.

The Chancellor George Osborne pledged an increase in nursery funding in his Spending Review in November but the critical issue for nurseries is whether this will translate into a sufficient hourly rate, particularly in the face of the new National Living Wage.

Top Five Challenges

Nurseries polled said the top challenges are ranked as:

• Increasing staff wages

• Achieving a profit or surplus

• Delivering the funded hours sustainably

• Recruiting and retaining staff

• Business costs

Drop in Business Confidence

The poll of nursery owners has also showed that business confidence has dropped by six per cent, compared to the NDNA’s 2015 survey, with more nurseries choosing not to expand their businesses, even though expansion is key to delivering a choice of flexible, accessible 30 free hours childcare.

Only 43 per cent of respondents were positive about the future compared with 49 per cent last year. This fall in confidence is reflected in profitability expectations, with fewer (51 per cent compared with 59 per cent in 2014), expecting to make a profit or surplus and 37 per cent (compared with 32 per cent in 2014) expecting to break even.

Fewer nurseries plan to expand (19 per cent) compared to last year’s 24 per cent. Expansion plans include maximising use of space and purchasing new sites.

The drop in business confidence relates to fears about being sustainable, poor funding rates, a lack of finance and availability of staff.

Childcare pilots

The Government has selected eight English local authority areas where pilots for the 30 hour scheme will take place from this Autumn. Full roll-out of the 30 hour scheme follows in September 2017 under new legislation covered by the Childcare Bill.

Earlier this month, Childcare Minister Sam Gyimah announced £13m will be used to allow councils in Wigan, Staffordshire, Swindon, Portsmouth, Northumberland, York, Newham and Hertfordshire to deliver 30 hours of free childcare from this September.

Ms Tanuku added: “NDNA urges the Government to use the 30 free hour pilots this year to test out innovative funding solutions so that next year, all families can take up their much wanted and needed places.”