Statistics prove the funding gap

Neil Leitch
Tuesday, August 14, 2018

Research, from independent early years experts, Ceeda, has revealed that contrary to the government’s repeated reassurances, childcare providers are still losing money for every ‘free entitlement’ place.


You would be forgiven for having a sense of déjà vu. New research has unearthed the full extent of the childcare funding gap – and once again, it is bad news for providers and parents. The research, from independent early years experts, Ceeda, revealed that contrary to the government’s repeated reassurances that, though the sector may have been underfunded in the past, all is absolutely fine now, childcare providers are – on average – still losing money for every so-called ‘free entitlement’ place they deliver.

For three and four-year-old places, that shortfall is 74p or 17 percent per child, per hour. For two-year-old places, it is even higher – a shortfall of £1.67 or 32 percent. When you total this up across the PVI sector, you get an overall annual funding shortfall of £370 million across the free entitlement offers. And when you factor in the fact that most providers use the income from three and four-year-old places to cross-subsidise the losses made providing places for younger children, this shortfall increases to £536 million.

More than half a billion pounds. For a sector that ministers continue to insist is receiving enough funding – more than enough, in fact. Of course, the fact there is a funding shortfall will come as no surprise to anyone reading this – but even I was taken aback by the sheer scale of the gap.

Is it any wonder, then, that we are seeing so many quality providers being forced to close their doors? Children and families minister, Nadhim Zahawi, was challenged on this via a parliamentary question from Liberal Democrat MP Tim Farron, back in May. Farron asked him what steps were being taken to protect nurseries from closures due to the introduction of the 30-hours. In response, the minister said: ‘No nursery needs protecting from the introduction of 30-hours free childcare as providers do not have to offer places if it doesn’t work with their business model.’

Really? Tell that to the nurseries, pre-schools and childminders facing the choice between risking losing their families to other local providers if they opt out of the 30 hours, and risking going out of business if they opt in. As one supporter of the Alliance’s Fair Future Funding campaign said: ‘Can’t afford to offer the 30 hours, can’t afford not to.’ Every week, the Alliance receives calls from providers looking for our help as they consider taking the difficult decision of closing. How can the government still be denying that there is a problem? And it’s not like we are alone in warning government of the scale of the problem.

Earlier this year, the Treasury Select Committee published the findings of its inquiry into childcare, in which it criticised government claims about funding rates as ‘misleading’, said the Department for Education’s use of old data to set funding levels was ‘unsatisfactory’ and, crucially, advised the government to ‘pay a higher hourly rate to providers’.

This is a cross-party group of MPs chaired by former education secretary Nicky Morgan. And yet, despite this damning report, the DfE has continued to bury its head in the sand, retreating to easily unpicked soundbites of ‘highest ever childcare spending’ and dismissing struggling providers as ‘outliers’.

But it is different this time around. Ceeda’s research is the first proper cost analysis since the rollout of 30-hours. It takes into account the impact that the introduction of auto-enrolment pensions and increases to business rates and wages has had on providers’ bottom lines. It recognises that balancing the books of a childcare business is not simply a question of ‘funding in and childcare hours out’.

That means two things. One, that ministers can no longer deny there is a funding gap and, two, that they have got to do something about it. So where now for the government? The DfE recently announced plans to conduct its own in-depth cost analysis research this summer, and I can only hope that the findings do actually reflect the realities of operating an early years provision – a quality one at that. For far too long, the sector had to battle with the suggestion – one which arose from the DfE’s last commissioned report – that it costs a mere £3.72 per hour to deliver care for three and four-year-olds.

And of course, whatever this research concludes, it cannot be the basis of rates that are frozen for years to come, amid dubious claims of being ‘frontloaded’. What the sector needs is a mechanism to ensure funding reflects the ever-increasing cost of providing high quality childcare. Anything less is simply not acceptable – enough is enough. eye

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