The Government’s childcare expansion in England has introduced a new swathe of parents to childcare codes, eligibility, and why exactly the hours cannot be referred to as ‘free’.
Meanwhile, providers, now old hands at dealing with the trials of Government childcare offers, face a whole new set of challenges as thousands more children become eligible.
The shortfall between the Government’s budget and the ‘real’ cost of delivering the entitlement when the plan is fully rolled out has been estimated at £5 billion per year.
Jo Morris, director of Playsteps Day Nursery in Swindon, says the challengeis there are simply not that many ways providers can adapt to make ends meet.
Additional charges
Abbotswood Pre-School Day Nursery in Romsey adds an hourly consumables fee, while Barkston Ash Nursery School in North Yorkshire charges a set fee termly.
‘Government isn’t expecting to pay for everything that you do as a nursery,’ says Tricia Wellings, chief executive of a group of eight nurseries and director of training and consultancy company MBK Group. ‘They’re just paying for the education part. But it takes a lot of confidence to be able to put together a package to entice parents.’
Barkston Ash charges for snacks, wipes, nappies, suncream, lunch clubs and paper and pens, and has doubled its monthly charge in the wake of the funding expansion.
Susan Mead, owner of childminding and nursery setting Friendly Faces in Congleton, charges for food. However, this isn’t enough, and Mead is looking into offering a holiday club for older children
Meanwhile, Abbotswood has developed a training academy to generate income and recruit and retain staff.
Hours
A more obvious way providers can increase their cashflow is by offering extra hours.
Driven by what she terms ‘economics rather than innovation’, Morris says her setting has simply upped rates for non-funded hours.
Wellings suggests providers look closely at what they might charge for hours used in addition to those paid for by funding, ensuring they align to the equivalent charged in day rates, if larger.
‘If someone comes in for six hours’ funding and then pays for the other four hours, you’ve effectively remodelled your day,’ she says. ‘If your daily rate is £100 but the funding only gives you £48 for six hours, you can legitimately make up that lost £2 per hour in your private fees. My argument is that I don’t have a single hourly rate, because rates depend on how many hours someone is physically buying.’
She acknowledges that balancing places – using income from more parents paying for additional hours in affluent areas, or from charges for extras in more deprived areas where more parents are on a funded-only package – is inevitable.
However, Wellings warns against groups using their more profitable settings to balance those that are struggling.
‘Not-for-profits might cross-subsidise, but for private settings, it’s a dangerous game,’ she explains. ‘You just need a littlebit of a change in a well-performing nursery and they are both in trouble. Each setting should be its own cost centre and able to make its own way.’
Planning
To do this, however, owners must be on top of their business model.
James Hempsall, director of consultancy Hempsall’s, is clear that planning is central to survival.
‘Any change in the sector requires providers to look at all aspects of their business models, and consider how they join up with new funding rates, or not,’ he says. ‘Financial modelling is vitally important.’
With relatively generous initial funding rates for two-year-olds, some providers are optimistic about their chances (see Case study). However, others urge caution.
‘Lots of nursery owners think the funding is great, because it’s more than they currently charge,’ says Lou Simmons, owner and director of Abbotswood Pre-School Day Nursery.
‘But the Government has done that on purpose. Not enough owners have looked at this over five or ten years. Already, we’ve had the national minimum wage upped since the rates were announced, so lots of us lost most of it overnight.’
Simmons will include terms and conditions warning that fees are subject to inflation and national minimum wage increases. But it is difficult to prepare for the unknown.
Morris explains, ‘Most settings I speak to are just taking the model they use with their three- and four-year-olds and delivering it downwards, and will just see how it works.’
‘People working in early years didn’t go into it to become mathematicians,’ Wellings agrees, but says the Government does not provide much support for business modelling.
With different rates, local authorities and ways money is paid, expanded funding may be a headache for providers. But they should demand answers, say consultants.
‘If in doubt, providers should ask,’ says Hempsall. ‘I’ve been asking local authorities to be crystal clear in the information they share with providers.’
Wellings concurs. ‘Often, local authorities tell you one thing but don’t give you the whole story. Read the legislation directly, not just what they give you. Interpret it. Make it work for, not against, you.’
But this is time-consuming, especially when more children than ever will have to be entered into the Government’s portal.
Convincing more parents that their ‘free’ hours are slightly more complicated might involve sending out emails, articles, newsletters, or spending time on the phone or at the door at the end of a busy day.
At Abbotswood, Simmons estimates that she already spends £4,000 a year on handling calls and processing funding on the portal. She now works those administrative costs into her rate.
Opting out
So with more children than ever poised to be eligible for the funding, can nurseries just say no?
Wellings suggests at the very least, most settings will cap their offer. ‘You only have to offer one place completely free. Then you can offer, say, five places for funded-only hours, at the times you allow, with charges for extras. And then you can have a package for extra hours.’
Friendly Faces only offers funding for set sessions to ensure full occupancy at all times. But Abbotswood’s answer to the funding challenge is simply to opt out, at least for the moment. Indeed, settings may not be losing out on much new business by ignoring the expansion.
Morris says across her two nurseries, just one family in 130 has said they will join in September because of the funding.
But a full opt-out is likely to have limitations, as Simmons acknowledges.
‘We are just starting to get a drip-feed of enquiries from new parents,’ she says.‘It will only take a few more before I’m going to have to take the funding after all, but I don’t want to.’
Wellings thinks it is worth giving change a chance, however.
Case study: Little Angels in Uppingham
Lucy Lewin, owner
‘
A rubbish plan is better than no plan at all,’ she says. ‘Some of my spreadsheets are so simple, but I have effective systems that help me understand what I’m supposed to be doing, like ensuring I use no more than 53 per cent of my turnover to pay staff. Just tracking those things, financially, is the difference between sustainable business and bankruptcy.’
When she first heard about the expansion, Lewin made a financial plan based on the rates the 85-place setting received for its disadvantaged two-year-olds, working on the basis that parents would claim no more than their existing hours, which turned out to be roughly accurate.
All her parents pay a voluntary charge. ‘I’ve been really careful to understand how my service is made up,’ she explains. ‘It’s like maths at GCSE, you have to show your workings.’
When the full expansion comes, the nursery’s audit has shown babies use significantly fewer consumables than pre-school children, so the extra charge will not apply to nine-month-olds. However, with a day rate of £78, and baby rates likely to be in excess of £11 an hour, Lewin is confident she can make ends meet.
Photos: Little Angels
