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Nursery closures have almost doubled in the last year having risen by 81 per cent, new figures reveal.
No less than 29 nurseries became insolvent in England and Wales in 2015/16 compared with just 16 in 2014/15, the accountancy firm Moore Stephens reports.
The dramatic rise in insolvencies is in stark contrast to figures for 2011/12, when only one nursery went bust.
This insolvency figure rose to 13 in 2012/13, 21 in 2013/14, 16 in 2014/15 and 29 in 2015/16.
Moore Stephens says the national living wage and high staff ratios have added to the financial burden felt by nurseries. It says that while many settings would prefer to keep childcare fees low, the strain they are under has forced some to raise fees, which risks pricing parents out of the market.
'Soaring costs will cause more closures'
Mike Finch, partner at Moore Stephens said: “The slim margins these nurseries are operating with and the soaring costs of caring for young children will force more to close. “The cost of nursery places is also likely to increase for parents, as nurseries may have to raise fees in order to provide adequate care for children. There will also be concern from working parents as the closure of a nursery will obviously cause considerable disruption. It would be hard to find an alternative at short notice, with some parents forced to take annual leave or unpaid leave from their job in order to care for their child.”
National living wage
Those in the early years sector say the introduction of the National Living Wage has added to nurseries' financial woes and other rising costs have played a part in nursery closures. The national living wage, introduced on 1 April, requires bosses to pay staff aged 25 and over at least £7.20 per hour.
Rise in closures are 'unsurprising'
Neil Leitch, chief executive of the Pre-school Learning Alliance, which represents 14,000 member settings, said: "It's very concerning, though sadly not surprising, that the number of childcare providers going out of business is on the increase.
"Rising business costs such as mortgages and rents, insurance, utilities and of course wages – especially in light of the introduction of the national living wage – are always going to put significant pressure on early years providers."
"Without sufficient Government funding for the free entitlement scheme, which the vast majority of providers offer, it is inevitable that a growing number are going to struggle to stay afloat."
High staff ratios
According to data from Department for Education, the average hourly cost for nurseries caring for a two-year-old child is £5.87 compared to £4.25 for three-and four-year-olds. The cost of care is higher the younger a child is, as more staff are required to supervise them. In England, there is an average staff-child ratio of 1:3 for two-year-olds and 1:6 for three- and four-year-olds.
The chief executive added: "While high staff-child ratios are of course a cost driver, compromising on the quality of provision by relaxing ratios is not a solution and has been comprehensively rejected by the sector.
'Government investment needed'
Mr Leitch added: "If the Government wants to build a quality, affordable, sustainability sector, it simply must invest what is needed. If it doesn't, we are likely to see many more provider closures over the years ahead."