New 'living wage' to put sector under further pressure

From next April all employees 25 and over will be legally entitled to a minimum wage of £7.20 an hour, as announced by Chancellor George Osborne in last month’s Budget.

With just eight months to go until it becomes mandatory, action is needed now, the NDNA said, calling for the long-term impact of the NLW to be taken into account alongside the Government’s funding review and the planned increase to 30 hours of free childcare for three- and four-year-olds from 2017.

A Department for Education consultation with the sector on the funding of free places ends this week (10 August).

Although ministers have said they are committed to increasing funding for free places, any changes will not come into effect until after the NLW is brought in.

Settings already under pressure from long-standing underfunding for free places and increasing business costs could be forced to close with the knock-on effect of the NLW.

Without adequate funding for free places, employers could be forced to take on less qualified and younger staff in order to stay open.

Fees charged to parents will inevitably rise, with nurseries anticipating that they would need to raise them by 7-10 per cent.

The findings are based on a snapshot survey of 300 nursery employers from small and large nursery groups and single-site providers covering more than 10,000 staff.

It found that wage bills would be pushed up by 10 per cent from April, and by 35 per cent from April 2020 when the NLW is expected to rise to £9 an hour.

Early years settings will also be under pressure to put pay up for all their staff in order to maintain pay differentials, or risk losing well-qualified staff.

Nurseries reported the NLW could drive down quality, with providers struggling to reward and retain well-qualified staff and forced to rely on unqualified younger staff. Staff:child ratios may also change.

Some also said that the increase would inevitably lead to fee increases for parents above inflation to stop them from going bankrupt.

The NDNA’s workforce survey last month revealed current problems with recruitment and retention with low pay, poor-quality applicants and changes to rules over GCSEs creating a staff supply crisis.

Early years settings also continue to have the added pressure of business rates and are not exempt from VAT.

Purnima Tanuku, NDNA chief executive, said, ‘Nurseries want to reward their staff properly, but the combination of mandatory inflation-busting rises and chronically inadequate funding is a real threat to the sustainability and quality of provision of private, voluntary and independent nurseries.

‘Most nurseries will have to increase all staff wages to keep their pay differentials and incentives for qualified staff or risk losing practitioners.

‘Some qualified under-25s will find themselves paid less than unqualified 25-year-olds, which just isn’t fair – but many employers will not be able to find extra funds to rectify this situation, so fear their business will suffer because well-qualified staff will leave.

‘It all comes back to the inadequate funding that nurseries are currently paid for free childcare places – there needs to be a real step change in funding to allow for proper pay across the entire nursery workforce or risk childcare on the cheap.’

Half of the survey’s respondents said that the NLW would affect how much they paid employees under 25 as well.

Ms Tanuku added, ‘Changing the ratios or employing more younger, less qualified staff is not the answer, as this will affect quality, which is not negotiable. Childcare has to be of high quality for it to be effective.’

Spot the difference?

The Government’s ‘national living wage’ is actually a misnomer, as it is essentially a new national minimum wage (NMW) for workers of 25 and over.

This is the view taken by think tank Resolution Foundation in an analysis published last month. ‘The title of the new policy adds significant confusion to what was already a muddled debate on the purpose and definitions of the various rates,’ its says.

In the Budget document, the Government’s new policy is accurately described as a minimum wage ‘premium’ for those aged 25 and over.

It has nothing to do with the Living Wage Foundation, which oversees the living wage as it is currently known – calculated based on public perception of what is needed for a minimum acceptable standard of living and a voluntary wage rate. It also takes into account in-work support. The living wage is currently £7.85 an hour and £9.15 in London.