Why are nurseries in financial trouble? An explainer
5 May 2020
Helena Takala, Research Fellow
Anneka Dawson, Principal Research Fellow
Recently, the CEO of Early Years Alliance warned that the current dire financial situation faced by its members could at worst lead to permanent closures across the sector. Industry papers have published stories on nurseries having to make choices about paying staff or paying rent and of parents setting up fundraising pages to financially support staff.
What’s behind these stories? Nurseries rarely grab headlines, so the public might be surprised to learn of the financial trouble they are facing – after all, schools in England are not at risk of collapsing, despite closures. This explainer aims to help readers understand what is happening with early years funding and why it matters. The discussion at the end will reflect on what it means for the sector going forward.
Why are nurseries struggling but not schools?
The majority of schools in England are either state-maintained primary (17,000) or secondary schools (3,400), while a comparatively small share are independent schools (2,300). The shape of the early years sector is quite different. The most common type of provider is a private one (14,700) compared to a much smaller share of school-based settings (8,700).
How are private nurseries funded?
Private providers receive funding in two ways: nursery fees paid by parents and government funding of the ‘free entitlements’ policy. In a committee hearing recently, the Minister for Children estimated that the balance between the two is 50-50. There are three different types of free entitlements: 1) for all 3- and 4-year olds universally 2) for disadvantaged 2-year olds and 3) extra hours for 3- and 4-year olds with working parents.
What brought about the present financial difficulty?
The government has maintained its entitlement funding to keep nurseries open for key workers and vulnerable children but due to the lockdown, private settings have lost their private income. Departmental guidance states that providers can use the Coronavirus Job Retention Scheme for the privately funded proportion of the wage bill. Early Years Alliance argued that the guidance has been misleading and that private settings budgeted, thinking they could use the scheme for their whole funding, hence the current cash flow issues.
What is the government’s approach to funding early years?
The government’s policy is to support free childcare. This is an area that has seen significant increases in funding since 2009-10 at the same time other areas of early years spending, such as Sure Start children centres, has decreased. The aim of the free entitlements approach is to support parental employment and to offer childcare to the most disadvantaged children.
How well is this policy approach working?
National Audit Office analysis shows that nearly all families in England are benefiting from the policy. The take-up of the universal entitlement is high, the extended entitlement is well established, and the overall quality of provision has improved since 2016. The government has not been as successful in supporting disadvantaged families, with lower take-up and poorer-quality provision in deprived areas. Recent analysis has also cast doubt on whether the policy is having the intended effect of increasing parental employment.
Is there enough funding for the early years?
The government can point towards increases in early years funding since 2009-10; industry bodies argue that there is not enough money to support the free entitlements policy. Analysis on whether the funding formula is sufficient has been inconclusive but providers have faced increasing cost pressures in recent years, from increases in the minimum wage to new pension requirements, without the funding formula reflecting the changes.
How much are practitioners in the early years paid?
Practitioners (who are overwhelmingly female, at 93%) are poorly paid. EPI analysis showed that they earned an average hourly pay of £8.20 in 2018 and that a high proportion (45%) claimed state benefits or tax credits.
Why is early years funding important?
There is robust international evidence that proves the positive impact of early education and care provision upon children’s cognitive, language and social development. Research has also shown that having access to pre-school education has an enduring influence all through school and post-16 education. Pre-school attendance and high-quality provision has even been shown to lead to higher average earnings of around £27,000 over their working lives.
Discussion: A new direction for early years
The government is in an unenviable position with different sectors requesting financial support to get them through the crisis. So far, it has rightly maintained some funding for private settings, to keep them open for the children of key workers and for vulnerable children. The government has also announced that local authorities can move around the free entitlement funding to ensure sufficient childcare places are available.
The government has also started gathering data from local authorities on the status of early years private settings in their area. It should use the data collection exercise to also monitor the financial standing and offer support to settings so that when the lockdown ends, they can reopen. Private settings look after some 750,000 children in England and permanent closures would have significant short-term impacts on parents looking to get back to work, and to children missing out on pre-school education.
Looking beyond the immediate crisis, it is clear to us that there needs to be a re-think of the government’s approach to early years funding in England. Policymakers need to move away from the long-held idea that early education and childcare is primarily a way of addressing a labour supply issue, and prioritise children’s outcomes and bridging the disadvantage gap. This will likely mean increased public funding on early education, which would be welcome as UK’s spending lags behind both OECD and EU averages.
Crises have a way of making us see what is important. Our colleague Duncan Brown’s reflections on the poorly paid, majority female care home staff ring true to early years practitioners as well. We hope that moving forward, parents and the wider public will have a newly found respect for the important work done by practitioners in nurseries across the country. To show our appreciation, we need to make sure nurseries stay open and that staff are paid to match the valuable work they do for parents, children and for us all.
Any views expressed are those of the author and not necessarily those of the Institute as a whole.