Early years providers 'face £500m childcare funding shortfall'

Independent research by Ceeda, billed as the first significant analysis of childcare and funding costs since the extension of free childcare last September, found a shortfall for a range of initiatives, including 30 hours provision for three-and four-year-olds and the two-year-old offer.

The average hourly cost to private, voluntary and independent nurseries and pre-schools of providing funded two-year-olds places was found to be £6.90, compared with an average government funding rate of £5.23 - a shortfall of £1.67 or 32 per cent.

The average hourly cost of providing funded three-and four-year-olds places is £5.08, compared to an average government funding rate of £4.34 - a shortfall of 74p or 17 per cent.

Ceeda calculates that there is currently an overall annual funding shortfall of £370m for the various free entitlement offers (£128m for the two-year-year free entitlement offer, a £179m shortfall for the universal 15-hour offer for three- and four-year-olds, and £63m for the 30-hour offer for three- and four-year-olds.

Taking into account the fact that the majority of early years providers "use the income from three-and four-year-old places to cross-subside significant losses made on places for younger children", Ceeda said the total annual shortfall across all care delivered by PVI nurseries and pre-schools is £536m.

It said this "starkly contradicts" the Department for Education's assertion that average funding rates are "far higher" than the cost of delivering places.

The findings follow the publication of a treasury select committee report on childcare in March which criticised the government for using "misleading" funding figures and called for higher hourly rates to be paid to providers.

Dr Jo Verrill, Ceeda's managing director said: "There are two key problems with the approach that the government is taking to early years funding. Firstly, the evidence base used to set funding rates did not account for year-on-year national living wage increases and other inflationary factors.

"Secondly, funding rates do not reflect the way that childcare providers run their provision and the extent to which they cross-subsidise places for younger children. Without these cross-subsidies, childcare fees for under-threes would be beyond the reach of many working families.

"A policy introduced to help 390,000 families therefore risks increasing costs for over 900,000 who also rely on childcare providers to care for and educate their children and  allow them to work - not to mention those parents and carers who are already  priced out of formal childcare services."

The Pre-School Learning Alliance has said providers are likely to pass the cost on to parents. Neil Leitch, chief executive of the Pre-school Learning Alliance, said: "So much of the government's rhetoric around ‘free' childcare has been about helping working families but this research makes clear that its current childcare policy is in fact likely to have the opposite effect," he said.

"With the recent introduction of the 30 hours, things are only going to get more difficult as nurseries, pre-schools and childminders across the country struggle to close a growing funding gap - and this is inevitably going to have an impact on parents, as providers are forced to ramp up fees or limit free entitlement places to stay afloat.

"Worst still, week after week, we are hearing reports of settings being forced to close their doors as a result of the government's unwillingness to acknowledge and address the long-running issue of underfunding."

A spokesperson for the Department for Education said: "We are spending more than any other government on childcare - including £1bn every year to deliver 30 hours of free childcare and fund the increase in rates we introduced last year.

"The rollout of 30 hours for working parents of three- and four-year-olds has been a success, with 294,000 children now benefiting.
 
"As with any new policy, we continue to keep this under review and have commissioned new research to ensure we've got this absolutely right."