The National Day Nurseries Association’s nursery business performance survey, in partnership with Nursery World and Pound Gates, warns that a growing gap in Government funding for free places for two, three and four year olds is pushing up the cost of childcare for parents.
The bi-annual report highlights ‘a worrying trend’ of ‘stagnating and decreasing funding levels’.
It urges the Government to ringfence the funding for free nursery education to ensure that the full amount local authorities receive reaches the frontline.
Nurseries report that the average rate of funding they receive for providing free places for two-year-olds is £4.89, below the average indicative rate set by the Government of £5.09 per child per hour.
According to the survey’s findings, four out of ten nurseries (41 per cent) that are already offering free places for two-year-olds do not receive sufficient funding to cover their costs, with an average shortfall of £1.19 an hour per child, up from 77 pence in November 2012 and equivalent to a loss of £678 per year, per child.
Hourly shortfalls in the South of England are even higher, at an average of £2.12 per child per hour.
The report said, 'Despite strong Government signals to local authorities to maximise their funding to early years providers and increasing delivery costs, a worrying trend is emerging of stagnating and even decreasing funding levels, with 12 per cent of respondents reporting decreases in hourly funding rates and 58 per cent no change.'
Eight out of ten nurseries in England (82 per cent) are unable to cover their costs for offering three- and four-year-old places.
These nurseries are losing an average of £700 per year per child, or £1.23 per hour per child, up from a loss of 96 pence an hour per child in November’s survey.
Purnima Tanuku, chief executive of the NDNA, said, ‘Over 80 per cent of the UK’s nurseries are in the private or voluntary sector, so the Government and local authorities must realise that unless the sector is offered the right support it will not be able to deliver on ambitions to support working families and provide high quality free early education places, including the commitment to an additional 130,000 free places for two year olds from September 2013.
‘Chronic underfunding of the free entitlement means nurseries and parents are effectively subsidising the Government’s initiative to provide free places for two, three and four year olds. Nurseries have to recover the losses they make on providing free hours, this in turn pushes up the price parents pay for the extra hours they buy over and above their 15 hour free place. It is critical that funding intended for the free entitlement actually gets through to nurseries on the frontline, so they can continue to support families.’
The NDNA's key recommendations:
- Funding for nursery education should be ringfenced to ensure the full amount reaches the frontline and the Department for Education must ensure local authorities fund providers at a sufficient level to meet the extra needs of disadvantaged children.
- Funding reform to bring together childcare tax credits, childcare vouchers and free nursery places.
- Private and voluntary nurseries should receive the same VAT and business rate relief as maintained settings.
- Nurseries should receive Government support through the Government's loan guarantee scheme and capital funding to fuel nursery expansion.
- Investment in the early years workforce as a Government priority.
Occupancy
The survey found that the average occupancy rate was 80 per cent, up on the NDNA’s last business performance survey in November, which was 71 per cent. However, the NDNA points out that the differences also reflect seasonal variations, as occupancy tends to be higher in the Spring term than the Autumn term when children go to school. In May last year average occupancy was 74 per cent.
But the report adds that comments show that occupancy is being driven by increased provision of free places and that this raises sustainability concerns, given inadequate levels of funding.
Fees
Many nurseries are struggling to avoid putting up fees for parents, despite shortfalls in local authority funding and the rising costs of business rates, staff and utility bills. Fifty-eight per cent of nurseries have frozen their fees in the past year.
The survey found that the average fee increase was 1.5 per cent, below inflation. (The consumer price index rate of inflation was 2.4 per cent in April.)
Patterns of use
Three-quarters of the nurseries surveyed said that they had seen changes to the way parents use childcare, as parents continue to struggle financially.
Nurseries reported that there were more part-time children and that parents were relying more on family and friends for informal childcare. More than half of the nurseries surveyed said that parents were only using the funded hours. One nursery owner commented, ‘Families will take any steps to reduce outgoings/ use the maximum funded hours and then other informal arrangements.’
Expansion
Despite underfunding issues, business confidence appears to be improving, with a slightly more positive outlook than six months ago.
Fifty-seven per cent of nurseries said they expected to make a profit this year, up from 44 per cent in the previous survey.
Thirty-two per cent of nurseries expect to break even and 11 per cent to make a loss.
More than a third of nurseries plan to expand, increasing provision for two-year-olds and out-of-school care.
However, 58 per cent of nurseries have no plans for expansion within the next year, with providers facing barriers such as access to funding and in some cases planning problems.
Some nurseries also reported that they were not considering expanding because of competition from local schools, which were encouraging parents to send their children there at three.
Changes to opening hours
Only seven per cent of nurseries said they were considering changing their opening hours, for example opening later or at weekends. Many nurseries said that that they already operated flexibly and some said there was little demand for longer opening hours. One nursery said that opening longer would cause problems with managing shift patterns, when they already had staff working ten hours a day.
Local authority support
Nurseries were questioned on the support they received from their local authorities and the responses were slightly more positive than in the previous survey.
However, comments from nurseries showed that late payment of funding was a common problem.
One nursery owner said, 'Paying bills seven months late with no penalties. Would you consider that as helpful to a local small business?'
Others suggested that cuts to local authorities meant local authority support and training was being stopped. Sixty-eight per cent of respondents said that training had been reduced or significantly reduced.
When asked what support they would like to see from their local authority, nurseries highlighted training, sustainable rates for funded places, prompt payment of funding, business support, and support with quality.
Comments from nursery owners: Business confidence, profitability, and expansion
‘Although we maintain a good occupancy level, the rising overhead and salary costs are having a real impact and it is very challenging to make ends meet.’
‘In 14 years things have never been as bad as this. It is frightening to think how we will survive when parents are mainly accessing term-time grant hours – we may have to close full daycare and offer just term hours if the trend continues.’
‘Our local schools are now encouraging our parents to leave us and go to them as they give them the funded hours the day they turn three. We are unable to compete as we can only access the funding the term after they turn three.’
‘Primary schools are causing my business problems, as I have five close by who are taking my children as soon as they are three years old, even if they don’t have the funding available.’
'In our area there has been a constant increase in the number of working families, so our waiting list is quite healthy.’
‘We are in the process of creating 40 more places to accommodate two-year-old funded children.’
