Childminders and nurseries that rely on parent fees ‘risk closure after lockdown’

A new report by the Institute of Fiscal Studies (IFS) highlights that while many providers were facing financial difficulties before the pandemic, a total loss of income from parent fees since settings were forced to close in March has put as many as a quarter of private-sector nurseries at risk of running a significant deficit during lockdown.

The IFS states: “That’s more than double the number which were running a significant deficit prior to the pandemic and is despite government support through continued public funding and the substantial furlough and self-employment schemes.”

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Despite childcare providers being allowed to reopen in early June, by the start of the summer holidays demand for childcare places remained 70 per cent below pre-crisis levels, the Challenges for the childcare market: the implications of Covid-19 for childcare providers in England, report states.

Even by mid-July, after lockdown measures eased, childcare use was only around 30 per cent of its pre-crisis level.

“There is a risk that some childcare providers will close, creating a shortage of places once demand returns to “normal” levels,” researchers say.

The research, funded by the Nuffield Foundation and carried out by a team of researchers at the IFS, the University of Birmingham, Frontier Economics, Coram Family and Childcare, and the University of Surrey have used the figures to analyse how childcare providers’ finances are likely to have been affected by the lockdown, and how they might look going forward.

It adds that childminders and those looking after the youngest children and babies are likely to be hard-hit by the financial impact of Covid-19 and risk of closures.

“There may be risks around losing capacity amongst providers who are particularly reliant on fee income, such as childminders and those catering for under 2s,” the report states.

Christine Farquharson, senior research economist at the IFS, said: “We estimate that half of childcare providers were at risk of earning less than £4 of income for every £5 of cost during the lockdown if they took in no fees from parents. The lockdown hit providers of all sizes and in all areas, but childminders – who entered the crisis with weaker finances on average – were more exposed than other types of settings.”

Assuming no further government support is announced, the IFS estimates that, for every 5-percentage point drop in fee income, an extra 3-4 per cent of settings risk tipping into significant deficit by 2021.

Josh Hillman, director of education at the Nuffield Foundation said: “High-quality, affordable childcare should be available to all families and is especially important as more parents begin to return to work. The Covid-19 crisis has exacerbated existing issues within the childcare sector, with some settings now at risk of closure. Childcare providers play a crucial role in the well-being and education of young children, helping to tackle the disadvantage gap before children enter primary school.”

Councillor Judith Blake, chair of the Local Government Association’s children and young people board called on the government to provide “good quality childcare for all families”.

She said: “As we enter the next phases of the pandemic, it is vital that all parents have access to the good quality childcare they need to enable them to return to work, while ensuring that children have the support, they need to develop school readiness.

“However, early years and childcare providers have not had access to the same funding as schools to stay open. As this report highlights, this along with a slow return to early education is putting settings at risk.

“It is essential that we have enough childcare places to support families to ensure the country can recover from Covid-19, both economically and socially.”

Tulip Siddiq MP, Labour’s shadow minister for children and early years, echoed calls for a funding boost, adding: “Coronavirus has delivered a hammer blow to a childcare sector that was already on its knees after years of underfunding by the government.

“Labour has been arguing for targeted support to save sectors like childcare that have been worst hit in this pandemic. Ministers must not allow nurseries, childminders and the families that rely on them to pay the price for their serial incompetence and failure to support essential services.”

Neil Leitch, chief executive of the Early Years Alliance, said: "As the report rightly states, nurseries, pre-schools and childminders were already struggling long before the pandemic as a result of sustained government underfunding. Now with the additional challenge of significant falls in parent fee income as a result of the coronavirus outbreak, many childcare providers are unsure if they will be able to survive for much longer - our own research from earlier this year found that one in four feared closure within twelve months.

"If the government is serious about re-booting the economy, it needs a sustainable early years sector to ensure that parents have access to childcare they need in order to work. We urge the government to listen to the experts, look at the evidence and accept that urgent action is needed if this vital sector is going to survive the next few months and beyond."

Purnima Tanuku OBE, chief executive of National Day Nurseries Association added: “This research and analysis shines a light on the totally unsustainable situation many nurseries now face and echoes our own research which uncovered that 71 per cent of nurseries expect to make a loss over the coming months.

“Many of these same nurseries remained open to key workers’ children during lockdown at the loss of many thousands of pounds. They now need urgent support.

“For the average nursery, public funding only makes up about 38 per cent  of their income according to our research, so the vast majority of nursery businesses are suffering this deficit from the lack of parental income.

“Quality early years education is crucial for children’s development as well as being vital for economic recovery. NDNA has been calling for a transformation investment this financial year as well as getting the long term funding right. This must now be made a priority, otherwise we risk more nurseries closing and fewer places being available for working parents.”