30 hours: nearly one year on, government must wake up to warning signs 

Shortfalls in government funding have more than doubled over the past year, leaving cash-strapped nurseries struggling to pay even minimum wages to staff, says National Day Nurseries Association (NDNA).

Almost a year on, the impact of the 30 hours of funded childcare policy is causing huge challenges for nurseries, including rising business costs, inadequate funding rates, growing deficits and additional administration. 
The deficit between the cost of delivery and funding paid via local authorities has grown to an average of £2,166 per year per child which is crippling nurseries. This cost is passed on to parents through higher fees for younger children or charges to parents for extras. Almost half of the respondents to NDNA’s annual nursery survey for England for 2018 charge parents up to £10 per day to make up the shortfall to provide these ‘free’ childcare places.

The 30 funded hours policy, which rolled out in September 2017 across England, has also created a huge administrative burden, with nurseries losing at least one staffing day each week to deal with the new system and help parents register.

A third of nurseries that responded to our survey are having to limit the funded places they can offer to try to reduce their spiralling shortfalls. Local authorities are paying a third of nurseries late which further exacerbates their cash flow challenges.

Launching the report findings in the run up to NDNA’s annual nursery conference in Coventry on Friday, which will bring together over 400 nursery providers, practitioners and stakeholders, Chief Executive Purnima Tanuku OBE said: “It’s about time government woke up to the full cost of delivering their 30 hours ‘free’ childcare policy. 

“One in five English nurseries that responded to our survey expect to make a loss and many fear they may have to close their doors. Our figures show that since the 30 hours policy began, closures have increased by 47% on last year. 

“Nurseries are forced to alter the way they deliver funded hours, by restricting the amount of places they offer, holding back from hiring highly qualified staff or charging parents for extras to make up the funding shortfall. Neither parents nor nurseries want this to happen.

“Doubling the amount of funded childcare from 15 hours to 30 has more than doubled nurseries’ average annual shortfall which, coupled with late payments from local authorities, is seriously undermining their cash flows.

“Adding to these difficulties, nurseries are spending huge amounts of time supporting parents to understand the new system and reconciling payments. This is time which nursery staff should be spending with the children.

“This is a terrible state of affairs in a sector which should be thriving as more children than ever before take up their funded places.  

“We expect government to respond by saying it has invested record amounts into early years – but the funding is insufficient to pay for high quality early years education that supports all children to achieve their best. Research shows that the earlier children access high quality early years education, the better their life chances and long-term outlook in adult life. 

“By not adequately funding this policy, government is putting children’s life chances at risk. 

“The government must act now. Echoing the Treasury Select Committee’s recommendations to government earlier this year, government, via local authorities, must pay providers the going rate which keeps pace with rising wages and other business costs. Let nurseries focus on what they do best, providing high quality learning experiences for children.”

The survey also found that:

  • Top three challenges for nurseries this year are increasing staff wages, dealing with increased admin, achieving profit/surplus 
  • 71% of nurseries plan to increase their fees – by average of 4.6% higher than last year’s 4.5%
  • 19% of nurseries now expect to make a loss, with only 43% expecting a profit or surplus
  • 31% experience late payments from Local Authorities – the average wait is three and a half weeks but a third are paid four weeks late or more, two nurseries said it was 12 weeks
  • Increasing the hourly rate would have the biggest impact on nurseries’ sustainability, closely followed by exempting nurseries from paying business rates
  • Funding for disadvantaged two year old places – 11% are not providing places, 14% are limiting places
  • 54% say funding for two-year-olds places doesn’t cover their costs – average hourly rate is £4.99 and average av shortfall £1.82 - funding gone up slightly but increased costs inflated the shortfall 
  • 87% say funding for three and four-year-olds doesn’t cover their delivery costs – average hourly rate £4.25 which is higher than last year’s £3.94 but average shortfall increased to £1.90 per hour , £2,166 per year due to spiralling costs
  • 30 hours for three and four-year-olds – 17% limiting places, a further 31% plan to limit places, 63% will continue as they are, 6% either opted out or likely to opt out
  • HMRC’s Childcare Choices website challenges – 85% say it is a burden supporting parents; 58% say the system is too complex; 43% have difficulties reconciling payments
  • Administration: the average nursery spends 7 hours per week on 30 hours administration, one quarter spend 10 hours or more; the highest amount was 60 hours per week

The NDNA survey took place in March and April 2018. We received responses from 709 nurseries. Case studies are available for a number of regions across England. Read the full report at www.ndna.org.uk/annualsurvey  

Commenting on the report, Mike Cherry, Federation of Small Businesses (FSB) National Chairman, 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.

“As is shown in both our and the NDNA's reports, the reality is many providers are struggling financially, hit by rising business rates, operating costs and staffing costs, driven inadvertently by different ministerial decisions. 

“The Government needs to recognise these specific pressures, and must urgently commit to reviewing the funding levels given to local authorities for the 30 hours scheme before the situation worsens. 

“To help combat the ever-rising pressure heaped onto these small providers, we are also calling on the Government to create and fully-fund a new 100 per cent business rate relief scheme for childcare providers in England, as is in place in Scotland. 
“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.” 

Read the FSB's full response here.