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Nurseries in Wales are 'struggling to stay afloat' due to low funding rates and rising business costs, a new report has warned.
A survey by the National Day Nurseries Association (NDNA) found that the Welsh childcare sector is the 'most fragile' in the UK, with 45 per cent of nurseries unlikely to offer 30 funded hours from 2020.
Purnima Tanuku, chief executive of NDNA, said: "Nurseries really want to be able to offer families the help with funded childcare that the Government is promising them. But they cannot do this if accepting children for 30 'free' hours causes them to make a loss that could put them out of business.
"Fewer than half of nurseries we asked were currently making a profit or surplus, with average losses on each three and four-year-old funded place of £958 per year. More 'free' childcare could make this situation worse if the funding isn’t sufficient.
"Average occupancy in private nurseries in Wales is still very low at 68 per cent which is not high enough for the sector to thrive. Unless this situation is reversed, there’s a real danger they won’t be a private nursery sector in Wales, ready to offer the high-quality flexible childcare that parents need."
The report, featuring the views of owners and managers at 122 nurseries, reveals Wales currently has the lowest hourly rates for funded childcare in the UK.
The hourly rates paid to nurseries in Wales is currently £3.15 per hour compared with £3.94 in England, resulting in an average loss of £958 per child per year.
Only a third of nursery respondents felt confident about their future and just over half expected to break even or make a loss this year.
More than three-quarters of nurseries also said they plan to raise their fees – by an average of 4.3 per cent – in the coming year to deal with increasing business costs.
Unless the Welsh Government changes its plans, the NDNA has warned that thousands of families could struggle to find a nursery offering the promised entitlement for three-and four-year-olds.
"As things stand there is no such thing as a 'free' nursery hour," Mrs Tanuku added. "Three quarters of responding nurseries plan to increase their fees for paying parents to help bridge the funding gap. This isn’t fair on families or childcare providers.
"The good news is that with three years to go before full roll-out of 30 hours, the Government has time to listen to the nursery sector and put together a robust plan and the right funding to make sure it works.
"This is a perfect opportunity for the Government to ensure they can meet parents needs by enabling private and voluntary sector nurseries to participate fully in the transformation of the quality, flexibility and choice of childcare in Wales."