What can they do to recover?
Ahead of the Chancellor’s budget this week, there have been lots of articles and opinion pieces about the importance of targeting the mid-50s to early 60s cohort who have taken early retirement and what measures could be taken to entice them back into work to help address the anaemic economic growth facing the country.
A more logical strategy might be to look at what can be done to help people in their 20s and 30s that would love to start their own business or return to work but can’t because of their childcare costs.
A new report from charity Coram says that the average annual cost of a full time nursery place for a child under two has risen 5.9% to £14,836 a year at the same time that availability of places is dropping.
Further analysis from the BBC shows that it now costs an average of £285 a week for nursery care which is the equivalent of 44% of the average pay for a full time worker.
The availability of places are also being squeezed with just half of UK local areas confirming that they have enough spaces for children under two and only 66% said they could accommodate all three and four year olds who receive 15 hours a week free childcare with both of these being 7% down on the previous year.
YMCA, the largest charity provider of childcare in the UK, is closing four nurseries at the end of the month and warns that more could follow claiming that years of underfunding in the sector and unsatisfactory rates for 2023/24 leaves early years providers under increased strain.
The rates they refer to are the Early Years National Funding Formula (EYNFF) allocations – which is the amount the government sets for local authorities to support nurseries but at the moment fall below the level of the National Living Wage and headline inflation.
The charity is one of the largest nursery groups in the UK and runs childcare provision through a federation of local YMCAs operating in more than 80 early years settings across England providing 4,500 childcare places.
YMCA estimates that funding rates for two year olds have risen by 4.4% for the year and 3.2% for three to four year olds but there is a 6% shortfall in EYNFF levels for two year olds and a 7% gap for three to four year olds.
Currently 34% of local authorities have received a funding increase of 2% or less for three and four year olds and 48% received 2% or less for two year olds.
Denise Hatton, Chief Executive of YMCA England and Wales, said: “Looking at the current picture of funding for early years settings against a backdrop of colossal inflation rates, ongoing cost of living and a full blown recruitment crisis, it is little wonder that providers are buckling under the strain.
It is against this backdrop that all of a sudden, the rise of nursery closures is more explainable.
The past year has been especially tough for all education provider businesses with more entering administration, a CVA or closing through liquidation last year than in any of the previous three.
Education insolvencies
2019 – 151
2020 – 153
2021 – 181
2022 – 271
Jonathan Broadbery, Director of the National Day Nurseries Association (NDNA) echoed those concerns saying that inflation and high food and energy costs were hitting nurseries particularly hard.
“They cost as much to run as a school, and yet unlike schools they have to pay business rates. The average nursery pays £12,600, but London nurseries will be paying even more because it’s calculated on the value of your property.
“In Scotland and Wales, nurseries are exempt from this tax and they should be here too. Nurseries need urgent support in this cost of living crisis just as other businesses received during Covid.”
There is currently a parliamentary inquiry into “Support for Childcare and the Early Years” heard evidence from NDNA and others.
Gemma Rolstone, an NDNA member and Director of Quality at Puffins Childcare in Devon told the Committee that increases in the National Living Wage were driving up nursery bills.
She said: “Staffing costs are the biggest burden on childcare providers because our staff are our business. The staffing bill equates to 65% of expenditure but this is going to rise to 75% which leaves very little room for the other things. That’s our biggest struggle.
“Business rates have always been a contentious issue too. The exemption over the pandemic saved a lot of settings but while the unit rate is calculated differently between local authorities, the funding rate is the same across the board.”
Other witnesses said how tough it was to retain staff and that because of set ratios required for staff: children, if they aren’t able to fund the correct number of staff, several are closing rooms or even nurseries altogether.
The volatile mix of underfunding, rising energy, inflation and running costs as well as staff shortages in a tight labour market is causing a real crisis for many nursery owners.
Several are having to seriously consider the future viability of their companies – because at the end of the day they are still a business – while the remaining ones are forced to raise their fees which will affect their customers and could also precipitate future difficulties.
This is why we offer a free initial consultation to any nursery owner or director who wants more information and advice on what their options are when it comes to the future direction of their business.
Once our advisors have a clearer idea of your exact circumstances then they will be able to let you know what options you have available whether your intentions are to hopefully save your nursery or oversee an orderly closure.
The sooner you get in touch, the more leeway and choices you usually find you have – but only when you take the first step and contact us first.