Call for business rates and VAT to be abolished for nurseries

A report from the Education select committee has called for business rates and VAT to be dropped for nurseries.

reviews of policy following the general election result.


The Government should remove business rates and VAT from nurseries and support an expansion in childminding capacity, according to a report from the cross-party Education Committee.

The report says many would-be childminders are blocked from operating by social housing providers, including councils, due to rules that ban tenants from setting up businesses from their homes. It calls on the Government to work with the Department of Levelling up, Housing and Communities to remove these barriers.

While the report welcomes the increased investment in childcare announced in the Spring Budget, it says that extending ‘free’ childcare provision will not work unless the funding rates cover the full costs of childcare.

It calls on the Department for Education to “work closely and consistently with childcare providers and local authorities… to set the funding rate at a sufficient level” and to stop describing the 30-hours offer as ‘free hours’,  instead referring to it as ‘funded’ or ‘subsidised’ hours. It says parents feel the ‘free’ label is misleading as the hours are only offered in term time and providers often have to charge higher for additional hours or other costs to make up the funding deficit.

Education Committee Chair Robin Walker said:  “The childcare market is facing significant challenges in affordability and availability, with unprecedented staff turnover and nurseries closing, despite massive demand from parents who want a career and to provide for their families but struggle to find affordable services. It is clear that ministers have more work to do to address this.

“Simply extending the number of hours that the Government calls free will not work unless the funding rates accurately reflect the costs of providing high quality early education and childcare. We have heard that many settings rely on charging more for the children who attend them outside of the funded hours. It is therefore essential that ministers reduce burdens on the sector and provide adequate funding for all the stages of early education.”

Other recommendations include fundamentally reviewing the complicated tax-free childcare scheme and simplifying the complex system of applying for the 30-hour entitlement. Parents currently have to apply for an ‘eligibility code’ 4-10 weeks before their child starts with a provider. Children can only join at the start of a new term and parents must ‘reconfirm’ their eligibility for the scheme every three months. Also, the report highlights that parents of summer born children currently risk losing out on funded places.

Other recommendations are:

  • Extending the 30 hours eligibility to parents who are studying or in training
  • Closely monitoring recently announced changes to childcare ratios, meaning fewer childcare workers supervising more children, and reversing them if quality and education outcomes suffer.
  • Mandatory training for childcare workers in identifying and managing types of SEND
  • A commitment to long-term funding of Family Hubs and rolling them out nationally.
  • Better data on the effects of formal childcare on very young children.
  • Focusing on a long-term plan for childcare through reviewing and updating the Government’s 2017 Early Years Strategy.
  • More focus on career development for staff, with the expansion of the Early Careers Framework – used to define training for new teachers – to apply to all staff working in Ofsted-registered early years. To support providers to develop their staff, the introduction of a Leadership Quality Fund is also recommended.

Walker said: “Staff are the lifeblood of this sector and the huge expansion of subsidised childcare will only be successful if we can stem the tide of people leaving the workforce. There needs to be a revamp of career development, with improvements to pay, progression and conditions so that the profession is given the respect and status it deserves.

Dr Mary-Ann Stephenson, Director of the Women’s Budget Group, welcomed the report’s focus on underfunding of childcare places. She added: “We are pleased to see the report reflected the concerns made by WBG and other organisations about the inequality of provision for those on low incomes. However, we are disappointed that this did not translate into the Committee making a specific recommendation to address this issue. Restricting the eligibility criteria for the full 30 hours to working parents risks embedding inequalities for future generations. High quality provision is particularly important for children from disadvantaged backgrounds and in closing the attainment gap yet, as the report itself highlights, years of under-funding has led to more providers closing in disadvantaged areas where it is harder to charge parents high fees to cross-subsidise ‘free’ hours.”

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