Early Years: The cost of extending free childcare

Two-and-a-half hours of free childcare a day is not enough time to get anything done, according to Belle Kaur, whose three-year-old son Jason currently attends the nursery at Fox Hollies Children's Centre in Acocks Green, Birmingham, each morning. "It is hell doing the day-to-day essentials like shopping. He has tantrums in the car and in the shopping centres," she says.

Like every other threeand four-year-old in England, Jason is currently eligible for 12.5 hours of childcare a week under the government's free entitlement scheme. Kaur uses her free hours over five days, paying extra for Jason to stay longer on Wednesdays and Fridays.

But from 1 September the Kaurs will be eligible for an extra 2.5 hours of childcare a week under government plans to extend the free entitlement to 15 hours a week for all threeand four-year-olds. The new rules are also more flexible, allowing parents to use all their hours over a minimum of three days if they wish. Local authorities are also encouraged to work around the needs of individual families, even allowing parents to use their free childcare allowance for up to 10 hours a day.

Kaur believes the changes will boost her family's quality of life. She sufferers from fibromyalgia, a debilitating condition that affects her muscles and ligaments, and the extra hours will give her a much-needed rest and allow Jason to receive further professional support for his speech and language needs while at nursery. "I'll be sending Jason to nursery on Monday, Wednesday and Friday for free, keeping him at home on Tuesday and only paying for him on Thursday," Kaur says. "I have three days to do the essentials like shopping, cleaning and getting some rest in, while Jason has more routine and more time to improve his learning and understanding."

In north London, mother of two Monica Patel has been able to take advantage of the flexible 15 hours of free childcare for the past year. Patel lives in the London borough of Brent, one of the 19 areas to test plans to extend the free entitlement. Her four-year-old son Ravi used to attend his nursery from 8am until 6pm Monday to Friday, but thanks to the added flexibility of the new system, she is now able to use all her free hours over four days a week and stay at home on the remaining day with her son. "I was able to pull Ravi out of nursery on a Friday, knowing I could still use all of my free hours across the rest of the week," she says. "Previously he had to attend every day to get all his free hours - it was too rigid."

Pressure on providers

Last year, the Department for Children, Schools and Families' evaluation of 14 of the pilot areas found there was an increased parental demand for extending the free entitlement. More than one-third of childcare providers experienced more demand from parents as a result of taking part in the pilot scheme. And almost half of the parents who took advantage of the extended hours said it made it easier for them to work and more financially viable for them to hold down jobs.

However, the reaction of the pilot childcare providers has been mixed. In February 2009, an evaluation carried out by the previous government claimed that almost a quarter of providers were in better financial health as a result of government-funded childcare and only eight per cent were worse off. But fast forward two months to April 2009, and market intelligence providers Laing and Buisson revealed that 62 per cent of nurseries felt the funding they got from their local authorities to deliver free childcare did not cover their costs.

Emma Beard manages Fox Hollies, the 50-place nursery that Jason Kaur attends. She remains concerned about recovering the full cost of offering the extended free entitlement. "One of the ways the extension is likely to impact our budget is through the cost of catering," she says. "The cost of dinner is built into our fees because children who only come for 2.5 free hours a day do not stay for lunch. But soon people will stay all day without paying anything so we need to find a way to cover the cost of meals."

The nursery will also need to look at getting more staff to cover the potential influx of children wishing to stay all day. Currently, parents can use their free hours at Fox Hollies between 9.30am and 12pm, or between 1pm and 3.30pm. The move to 15 hours has increased demand for places at the nursery and with the new flexibility, Beard may have parents wanting to use their free entitlement all at the same time.

"We could effectively have the whole nursery full by 8.30 in the morning. So we need to look at our staffing and get more banked staff in to cover shifts," she says. "I would always look at having the same people in to get consistency. The trouble though is if it's not a full-time job, people come and go."

According to the National Day Nurseries Association (NDNA), Beard's predicament is all too common. "The message from our members is they don't believe they're going to get funding that covers their costs," says Claire Schofield, NDNA's director of policy.

According to its research, the average cost for nurseries to provide the free entitlement is £4.52 per hour, compared to the average funding level of £3.58 per hour. That means nurseries face a shortfall of 94p on average for every free hour of childcare they provide. "It's a very difficult situation to be in because the loss of £1 per child per hour can add up to several thousand pounds a year and make nurseries unsustainable," Schofield says.

Government assistance

Nurseries used to charge parents "top-up" fees to ensure they did not make a loss on free hours, but last year's code of practice outlawed charging extra amounts.

The previous government also tried to solve the problem by developing the early years single funding formula in 2008. The formula ensures that funding for free childcare is given to providers based on the number of children who attend their facility, not the number of places they offer. This was meant to prevent council-run nurseries getting more funding due to their excess of unfilled places. But the new payment structure, which was due to take effect in April 2010, was delayed after it transpired that the changes would cripple council-run nurseries without really improving the situation for other providers.

Schofield says the majority of NDNA members deliver the free entitlement but many are considering pulling out. She wants the government to temporarily lift the ban on top-up fees until the funding issues are resolved. She believes this might be the simplest solution as she is unconvinced more money for childcare is a government priority in the current climate of cuts.

Families like the Kaurs welcome the extra hours and believe that the government and providers need to find a way to make sure they can continue to offer free places. "Jason loves being around other children," says Belle Kaur. "The extension to 15 hours gives him that extra time at nursery each day and gives me the break I need."

PILOT WARNING

How one nursery has seen its costs increase

Ken McArthur, owner of Polly Anna's Daycare Nursery, has a word of warning to local authorities planning their extended free entitlement. "When calculating budgets they need to look at the parents currently taking less than the 12.5 hours they are entitled to," says McArthur, whose nursery is located in York, one of the 19 extended entitlement pilot areas. "If they assume they simply increase the budget by 2.5 hours for every child, they are mistaken."

McArthur says that since parents have been able to use more than 2.5 hours of their free entitlement per day, they have become a lot smarter about how to use it.

Changes to fees needed

"Where a parent used to come in for three five-hour sessions a week, they would get the first 2.5 hours free each morning and pay for the rest," he says. "Now they get the whole five hours free each day and I have no way of making any extra money."

This would not be an issue for McArthur if his costs were met by local authority funding. But at present he receives £3.46 per child per hour to deliver free entitlement childcare, despite costs being 28 pence more per hour, per child. "In York the funding has dropped and we fear it will again," he says. "As part of the pilot we used to get enhanced funding for encouraging flexibility but that has gone."

McArthur is aware that "top-ups" are still being charged by some pilot providers, despite a government ban, and sympathises. In order for him to stay afloat he admits he may have to look at fee structures, or charge for things the government deems to be "extras", such as food.

"Over the year 50 per cent of my income is government-funded. When so much comes from one source and you have no control over how much you get, it is a big challenge," he says.