Government’s own research testifies to funding crisis for early years providers

Karen Faux
Friday, March 1, 2019

According to a Government commissioned report, childcare providers’ hourly costs have risen ahead of factors such as inflation, rises to the minimum and national living wage, and pension contributions.

With these factors underpinning, but not wholly explaining, the rise in childcare costs, it seems that childcare providers could have no alternative but to raise fees to parents in order to stay in business. The fact tdhat the Government has frozen funding since 2015 has exacerbated the dire situation.

The Early years providers cost study 2018 , published by Frontier Economics, which involved in-depth interviews with a randomly selected sample of providers between March and July 2018, balanced provider types and regions in England, order to ensure sufficient sample sizes for each region and type of provider.

It shows a snapshot of a typical week, with most of the data collected during the summer term when occupancy is typically at its highest and, consequently, total income is at its highest and hourly delivery cost is at its lowest

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A total of 278 providers were approached to take part in the study and 120 settings featured in the final sample to provide complete data.

This data highlighted that staffing costs account for more than three-quarters of provider costs and are set to rise further with increases to the national minimum wage and national living wage and employer pension contributions in April.

Funding for places for two-, three-, and four-year-olds has been frozen since 2015.

Most settings have the same hourly parent-paid fee for all ages of children.

Combined with the higher average funding rate for free entitlement hours for two- year-olds than that for three- and four-year-olds, this means that settings with income from both parent fees and free entitlement funding receive, on average, 14p more per hour for free entitlement hours than parent-paid hours for two-year-olds and 74p less per hour for free entitlement hours than parent-paid hours for three- and four-year-olds.

Other key findings, on average:

  1. 77 per cent of costs were staffing costs, 13 per cent of costs were ‘venue-related’, and 10 per cent were for other items
  2. 54 per cent of settings’ income is free entitlement funding, 41 per cent is parent-paid fees, and 6 per cent is from other sources

There are some indications that the hourly cost is higher in less deprived regions, but there are no substantial differences between rural and urban areas.

Raising fees or closing down?
The Early Years Alliance says it is concerned that, unless increased delivery costs are met with increased government funding, parents will face higher childcare fees and providers may have to close all together. 

The Early Years Alliance said it was concerned that unless Government funding costs are increased to cover delivery costs many providers will be forced to put up fees for parents or close.

Neil Leitch, chief executive of the Early Years Alliance, said, ‘Yet again the Government’s own-commissioned research puts the scale of the crisis in black and white: hourly costs have risen more over the last three years than can be explained by inflation and the minimum wage and pension contribution policy changes.

‘Despite this, funding rates have been frozen by the Government throughout that time. Things are looking increasingly unsustainable and, with staffing costs making up over three-quarters of provider outgoings and due to rise significantly next month, the need for Government action on childcare funding has never been more compelling.

‘These findings – taken as snapshot of a small proportion of providers in the busiest term – are just the latest in a long list of studies which show the level of crisis in the early years.
Independent research from sector experts Ceeda – using a sample size ten times larger than today’s study - found almost two thirds of a billion pounds black-hole in childcare funding. This underinvestment is causing untold financial problems to childcare settings, and this will ultimately impact on families who will see prices increase, or childcare settings close for good. The Government knows this but continues to find ways to defy mathematics rather than increase funding.’

Responding to the findings, PACEY’s Chief Executive, Liz Bayram, said: ‘We are relieved the long-awaited research on Early Years Providers Costs has finally been published by DfE. It lays bare what we have been highlighting for a long time now, that the hourly rate most local authorities pay providers to deliver early years entitlement falls far short of the actual cost incurred.

‘With maintained nursery schools now receiving a much needed funding boost in recognition of this issue, it is time for the DfE to do the same for all providers struggling to deliver quality funded place on a shoestring. 

‘In fact, the research reveals that childminders have an hourly delivery cost nearly as high as that of maintained nursery schools due to their statutory ratios. However, they have not received any additional funding to reflect this reality. Low funding rates, delayed payments and the inability to delivered funded hours to related children are all leading to more and more childminders leaving the profession.

‘We hope this is finally the evidence needed to ensure the next Comprehensive Spending Review delivers the sustainable funding all early years providers need to ensure their future sustainability.’







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