A survey from the National Day Nurseries Association (NDNA) shows that shortfalls in Government funding are leaving nurseries struggling to pay staff and remain open.

Funding shortfallSmall Childcare Providers Struggling

The NDNA’s annual nursery survey reveals that almost a year after the launch of the 30 hours of funded childcare initiative, the deficit between the cost of delivering it and the funding paid via local authorities has grown to an average of £2,166 per year per child.

Coupled with increased administration and business costs, this is “crippling” nurseries, says the NDNA, leading them to pass these costs on to parents through higher fees for younger children or charges for extras.

Almost half of the respondents to the survey said they charge parents up to £10 per day to make up the shortfall caused by these ‘free’ childcare places, and a third said they are having to limit the funded places they offer.

Nurseries also said they were losing one staffing day each week to dealing with the increased administration required and helping parents register for the scheme.

The scheme further impacts some nurseries’ cash flow because local authorities are paying 31% of them late.

Chief executive Purnima Tanuku OBE said: “It’s about time government woke up to the full cost of delivering their 30 hours ‘free’ childcare policy.

“One in five English nurseries that responded to our survey expect to make a loss and many fear they may have to close their doors. Our figures show that since the 30 hours policy began, closures have increased by 47% on last year.”

“Doubling the amount of funded childcare from 15 hours to 30 has more than doubled nurseries’ average annual shortfall which, coupled with late payments from local authorities, is seriously undermining their cash flows.”

A challenging time for nurseries

The survey revealed that the top three challenges for nurseries this year are increasing staff wages, dealing with increased admin, and achieving profit/surplus. 19% of nurseries now expect to make a loss, with only 43% expecting a profit or surplus.

Some of the increased admin is blamed on HMRC’s Childcare Choices website, with 85% saying it is a burden supporting parents, 58% saying the system is too complex and 43% complaining that they have difficulties reconciling payments.

87% say funding for three and four-year-olds doesn’t cover their delivery costs; the average hourly rate of £4.25 is higher than last year’s £3.94, but the average shortfall has increased to £1.90 per hour (£2,166 per year) due to spiralling costs.

The scheme for disadvantaged two-year-olds is woefully underfunded too. 54% of nurseries say funding for two-year-olds places doesn’t cover their costs; the average hourly rate is £4.99 and average shortfall, £1.82. While the funding has gone up slightly, again, increased costs have inflated the shortfall.

So how are nurseries tackling the problem?

  • 71% of nurseries plan to increase their fees – by average of 4.6% higher than last year’s 4.5%
  • 11% are not providing disadvantaged two-year-old places and 14% said they are limiting them
  • 17% are limiting places offered through the 30 hours for three and four-year-olds scheme, while a further 31% plan to limit places and 6% either opted out or likely to opt out.

“We expect government to respond by saying it has invested record amounts into early years – but the funding is insufficient to pay for high quality early years education that supports all children to achieve their best,” says Purnima Tanuku.

“Research shows that the earlier children access high quality early years education, the better their life chances and long-term outlook in adult life. By not adequately funding this policy, government is putting children’s life chances at risk.”

Finding solutions

The nurseries surveyed said that increasing the hourly rate would have the biggest impact on their sustainability, closely followed by exempting them from paying business rates. Purnima Tanuku says the Government must act now.

“Echoing the Treasury Select Committee’s recommendations to government earlier this year, government, via local authorities, must pay providers the going rate which keeps pace with rising wages and other business costs.”

“Let nurseries focus on what they do best, providing high quality learning experiences for children.”

The NDNA survey emphasises many of the findings of the Handle with Care report, released earlier this year by the Federation of Small Businesses (FSB).

Mike Cherry, Federation of Small Businesses (FSB) national chairman, said:

“The success of the 30 hours free entitlement depends on small childcare providers, which make up the majority of the marketplace, being able to provide an affordable, high-quality offer to parents.

“As is shown in both our and the NDNA’s reports, the reality is many providers are struggling financially, hit by rising business rates, operating costs and staffing costs, driven inadvertently by different ministerial decisions.”

The FSB is calling on the Government to recognise the specific pressures nurseries are under and not only increase funding for the 30 hours childcare scheme, but also to create and fully-fund a new 100% business rate relief scheme for childcare providers in England (something already in place in Scotland).


Are you a small childcare provider? How are you handling the growing gap between funding and costs? Share your experiences with us.