NDNA survey finds 95 per cent of nurseries say they are underfunded

Kathy Oxtoby
Tuesday, September 14, 2021

Most providers responding to an NDNA survey believe they will operate at a loss or just break-even this financial year.

The majority of childcare businesses in England say they are struggling financially, according to a National Day Nurseries Association’s (NDNA) survey published Thursday 9th September.

Ahead of the Comprehensive Spending Review, NDNA carried out a survey of private, voluntary and independent nurseries’ financial sustainability, receiving 406 responses representing 1,251 nursery sites in England.

The survey showed that 85 per cent of respondents were making a loss or only breaking even, while 95 per cent said the Government funding for three and four-year-olds doesn’t even cover their costs.



Financial losses due to absences or closures

As a result of the Covid-19 pandemic, the average nursery has lost more than £26,000 over the past year due to absences or closures, while 39 per cent of nurseries who responded expected to make a loss this year, the survey revealed.

Only 15 per cent expect to make a surplus, which is essential for investing in their staff and facilities.

These figures were reversed in NDNA’s 2018 survey, with 43 per cent expecting to make a surplus and 19 per cent making a loss.

The survey showed that the situation was worse for nurseries operating in the 20 per cent most deprived areas, where 46 per cent of providers expected to make a loss. These nurseries had on average a higher proportion of government-funded children (72 per cent compared to 55 per cent national average) so they are more affected by the shortfall between funding and delivery costs, NDNA said.

A larger proportion (84 per cent compared with the national average of 79 per cent) also said their two-year-old funding was not sufficient to deliver places. NDNA said that these nurseries tended to have more children eligible for these places, so it has more of an impact on their sustainability.

NDNA said that the ‘precarious financial instability’ of the private and voluntary nursery sector in England - which delivers between 70 to 80 per cent of all funded places – had ‘deteriorated significantly’ and that this was ‘largely due to Government underfunding’.


Key survey findings

The survey findings, published in NDNA’s report Stop Underfunding - Start Building Futures also revealed:


  • The average funding rate paid to providers for three and four-year-old places is £4.43
  • The average shortfall for each child per hour is £1.87 or £2,132 per child a year
  • 56 per cent of nurseries have received the full 6p increase this year; 16.8per cent received lower than 6p, but 28 per cent have had no increase at all in April 2021
  • The average funding rate paid to providers to deliver eligible two-year-old places is £5.33, with the average shortfall of £1.57
  • In the average nursery an average of 55.2 per cent of children are Government-funded; parent-paid hours make up 44.8 per cent of children
  • Financial challenges are leading to 14.2 per cent of nurseries limiting the numbers of funded places they can deliver
  • 7 per cent have limited places to children with Special Educational Needs and Disabilities (SEND) who are those that need early intervention the most, however the cost to providers is higher
  • Reintroducing business rates would see the average nursery hit with a bill of £12,640.58


‘Most shocking results we have seen’

Purnima Tanuku OBE, chief executive of National Day Nurseries Association (NDNA) said: ‘We have been surveying our nursery members over the past ten years and these are the most shocking results we have seen. Throughout the pandemic, we have highlighted challenges facing nurseries with increased costs and reduced incomes. But underfunding is a long running issue that must be tackled.

‘Children born now will have their whole early education shaped by this spending review and it’s a chance to get the funding right for them. The Government says that they have put in a record amount each year, but three years of flat funding followed by increases of a few pence per hour mean that rates haven’t kept pace. They are simply not enough to pay for the high quality early years education and care that our youngest children need. Our local authority investigation earlier this year discovered that £62m of early years funding was left in reserves or spent elsewhere.

‘The Government is now the biggest customer for our nurseries in England so the funding rate has a significant effect on childcare businesses which must be able to remain sustainable in order to deliver places. With 85 per cent of nurseries expecting to make loss or only break even this year, this flagship policy risks failing children, working families and businesses if the funding question is not addressed.’


Ms Tanuku said that from April 2022, nurseries would be paying full business rates unless they are made exempt, and that the average nursery would be hit with a bill of £12,640 even though schools offering the same service do not pay this. ‘This will result in almost half the nurseries we surveyed making a loss or being unsustainable. Even more nurseries will be forced to close,’ she said.


She added: ‘This spending review period is crucial – it will set levels of early years spending for the next four years affecting millions of children’s early education and development.

‘This is the best time to invest in a child’s future as supporting children now can save £16 billion a year in later interventions. Only by stopping underfunding can we safeguard the future of nurseries as they start building futures for our children.’


‘Dire financial situation’

Commenting on the survey, Tulip Siddiq MP, Labour’s shadow minister for children and early years, said: ‘This survey lays bare the dire financial situation that nurseries and other early years providers are in after a decade of Conservative underfunding.

‘We have already lost nearly 3,000 childcare providers since the start of the year. Without better support from government many more nursery and childminding businesses could collapse, which would leave thousands of families without the early education and childcare they need.

‘Labour’s Children’s Recovery Plan would deliver investment in early learning and set our youngest children on the road to recovery from the pandemic.’


Financial and business support

A Department for Education spokesperson said: ‘We recognise that the pandemic has created challenges for early years providers, which is why we provided significant financial and business support throughout to protect them. The number of childcare places available to parents remains stable, and the majority of eligible two, three and four-year-olds have continued to access free childcare places despite these challenges. 

‘We have invested more than £3.5 billion in childcare in each of the last three years, and we’re making millions more available through our early years recovery work to level up children’s outcomes.’


Download the Stop Underfunding - Start Building Futures report here


Case study


‘The last eighteen months has changed my confidence in the financial security of my business’

Dr Susan Poole of Monkton Nursery School in Liverpool, who responded to the NDNA survey, said: ‘After being a successful nursery setting for the past forty years, the last eighteen months has changed my confidence in the financial security of my business.

‘The huge losses in fees for the months when we could only accept keyworker children, and the enforced closure of “bubbles” has put my 80 place setting in great financial difficulty. In practical terms too, it is a challenge to staff the rooms when practitioners test positive as there is a dramatic shortage of supply staff to replace staff at short notice. 

‘It is impossible to build and maintain high standards in nursery education and care without sufficient funding to pay experienced, professional well-qualified teachers and practitioners, and sadly the National Education Funding supplied by the government falls way short of this level.

‘In my own setting, we offer a minimum salary of £10 per hour upward, and maintain a loyal dedicated team who provide consistent support to our children, with many who have worked together for ten, twenty years and more.

‘It is through these professionals that our children will learn and grow their confidence, but if the Government does not recognise the cost of this by increasing the NEF to realistic levels, it is our young children who will suffer. There should at least be parity with the funding rates attributed to mainstream nursery schools.’

Keep up to date with Early Years!

Sign up for our newsletter and keep up to date with Early Years education, process and events! We promise we won't spam you!