What is the point of free childcare if nurseries go under?

The Budget announcement on childcare has brought some celebration from parents – although it turns out it won’t fully kick in until 2025 – but has increased many providers’ worries about their future.

Child playing with blocks at nursery


There has been a lot written – particularly on social media – about the Government’s childcare offer, which mainly applies to England. It’s a lot of money, but the devil, as always, is in the detail. Childcare is on its knees in the UK. One of the main problems is caused by the so-called free care offer because it has never been fully funded. That means it operates at a loss. For that reason nurseries have to recoup the money elsewhere – by putting up their regular fees and by charging top-up fees for things like nappies or food or activities. Not all nurseries can do this – community nurseries, for instance, are not allowed to charge top-up fees and many have closed in the last few years. That is because an underfunded offer is often worse than no offer at all for nurseries unless parent also pay for hours outside the ‘free’ ones.

Bearing that in mind, the Government’s offer on childcare – to extend ‘free’ childcare to one and two year olds – sounds great, but if it is not fully funded – which it seems, from the figures announced, might be the case – it will be a loss to nurseries. Not only that but it will make it more difficult for them to recoup the money lost by charging more for unfunded hours. It’s simple economics.

At the same time nurseries are battling, like all of us, against rising costs. The minimum wage rise, while a really good thing, affects them particularly because a lot of nursery staff are on minimum wage, plus raising the minimum salary has knock-on effects on the salaries of other staff. Staffing issues are acute because staff can get paid more per hour without the responsibility for a small person’s life in their local supermarket and people need every extra penny they can get these days.

The Government did also announce incentives for childminders, whose numbers have been plummeting of late, but they only make up a small percentage of childcare cover in England so it’s hard to see that that would have a significant impact.

For parents, the Budget announcement may sound good news – and who doesn’t want more free childcare? – but it is being phased in from next April when two year olds will get 15 hours a week of ‘free’ childcare and it won’t come fully into effect until September 2025. So it won’t affect anyone struggling with childcare fees right now. Moreover, it is always referred to as the 30 hours or the 15 hour free childcare, but it only covers term time. Parents can use it across the year but that means fewer free hours a week – 30 hours becomes 22 hours.

And, while there were positive moves on Universal Credit, which applies to the UK generally, paying upfront childcare fees and a significant uplift in the cap on the money that can be claimed back [which had been frozen since 2005] – all of which campaigners have been calling for for years – some experts pointed out that the childcare move actually favours the better off. The Resolution Foundation think tank says that, under the plans, the richest fifth of households are set to gain £180 on average from the extra childcare entitlement, compared to £130 for the middle fifth of households and £20 for the bottom fifth.

And the Chancellor also announced a toughening of the benefits sanction regime and extended the number of part-time workers who could potentially face sanctions if they don’t increase their hours. Currently those working less than 16 hours a week on minimum wage come under a more intensive jobseeking regime where failure to seek or take a job with more hours can result in sanctions. This will be increased to encompass those working less than 19 hours a week.

The aim is to get the lowest paid to work longer hours to lift themselves out of poverty. That relies on several other factors being in place, however. Childcare is one – including school-aged childcare – but also good quality, secure flexible jobs. My daughter’s colleague at a fast food restaurant, for instance, is leaving because she can’t get enough hours to cover her childcare costs and because the hours she has aren’t guaranteed every week.

So the Budget announcement on early years is not perhaps as good as the leaks beforehand suggested and could have a negative impact on childcare in the long run – after all, what is the point of free childcare if there is no childcare to be had or if childcare providers can’t afford to offer it, bearing in mind it is not compulsory to offer the 30 hours? Cost is only one part of the equation. Availability is key and we know from recent reports that availability is patchy, particularly for children with special needs. It’s no use threatening sanctions if there’s no childcare in place or if the only childcare around is on the other side of town and you can’t afford the bus fare – or the time – to get there.

We then come to wraparound care. Out of school providers have been in crisis for years. A big part of the problem is parents’ ability to pay, but it looks – and the details are vague – as if the Government’s offer on this is to channel money to local authorities for schools to set up their own provision. That doesn’t address the reasons current providers are struggling. It just changes the provider.

Childcare providers are, of course, a mixed bunch. Some of the bigger chains are doing okay, particularly in the more prosperous areas. But childcare has to work everywhere if we are to realise the full benefits of it – both in terms of greater equality across children’s life cycles and beyond and in terms of parents’ ability to work and to progress. So what can be done? The childcare model in this country is clearly not working. It’s expensive, it’s hugely complicated and it operates as if childcare is only a private issue for parents. There is always the inevitable comment from someone in the midst of childcare debates that why should people without children subsidise parents. Curiously this argument does not seem to apply to schools. Yet childcare is education too and those first five years are absolutely crucial. Would it not be better, and simpler, to channel money to the providers and get local authorities who understand better the local needs of parents to oversee it all?

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