Challenges caused by the systematic underfunding of early years provision are being exacerbated by the rising cost of living and inflationary pressures. This is negatively impacting the financial viability of early years providers, the quality and access of childcare provision, and the availability of good support for children with special education needs and disabilities (SEND).
LGA key messages
- Good quality early education is essential to supporting children’s development and ensuring every child is given the best start in life. By the time disadvantaged young people sit their GCSEs at age 16 they are, on average, 18.4 months behind their peers and around 40 per cent of that gap has already emerged by age five. Pre-school has almost as much impact on a child’s education achievement as primary school does, and the impact is even greater for those at risk of developing learning difficulties.
- Challenges caused by the systematic underfunding of early years provision are being exacerbated by the rising cost of living and inflationary pressures. This is negatively impacting the financial viability of early years providers, the quality and access of childcare provision, and the availability of good support for children with special education needs and disabilities (SEND). Due to rising cost pressures, early years providers are having to make cutbacks in the services they provide and pass costs onto families through increased fees or new charges.
- Some local authorities are reporting significant concerns about the future of early years settings in their area. While data shows a small overall decline in the number of settings, some areas have been particularly impacted by setting closures which is resulting in parents struggling to access early years places or travelling long distances to providers.
- A more accessible and affordable childcare offer would offer significant socio-economic benefits for families and wider society. The cost of early years provision in the UK is among some of the highest in the world, with fees now reaching £7,000 each year for a two-year-old on average. The high cost of childcare is placing significant financial strain on many household budgets, particularly in light of the rising cost of living. It is also contributing to poverty, gender inequality and economic unproductivity.
- To improve access to quality childcare while reducing costs for families, Government must adequately fund early years entitlements to cover the cost of provision and enable providers to recruit and retain skilled early years practitioners. The Government’s proposals to change the ratios between staff and two-year-old pupils, from 1.4 to 1.5, will not address the structural challenges within the childcare system or alleviate short-term pressures.
- To help reduce barriers to accessing childcare for households on the lowest incomes, Government should reform Universal Credit rules so that claimants are paid childcare fees upfront – rather than in arrears – and implement a long-overdue review of the cap on the childcare costs that can be claimed, to ensure they are representative of the average childcare costs in each area.
Availability of early years provision
- Some local authorities are reporting significant concerns about the future of early years settings in their area. While the national picture regarding access to early years provision is complex, the most recent national data suggests that overall there has been a small decline in the number of settings. Where there has been a decline in settings, this does not always equal a significant decline in available places – this will vary from area to area. However, given inflationary pressures, we know the situation has subsequently deteriorated since this data was collected.
- We know that there is significantly variability in access between and within areas. Some local authority areas have experienced a particularly high number of closures, which can result in some families having to travel long distances to access early years provision. For example, between March 31, 2022, and August 31 2022, the North West, West Midlands, London and the South East have seen a net reduction in over 40 or more nursery providers, which is a greater reduction than in other areas.
- There has also been a shift in the type of provision that is available. There has been a continued and significant decline in the number of childminders, who provide an essential arm of childcare support that can offer flexibility for parents. Councils also report that parents struggle to find flexible ‘wraparound childcare,’ which is predominantly for older children, such as breakfast clubs, after school clubs or holiday provision. This type of provision is vital to enable parents to work and provides children with enriching activities.
- The national data shows that there has been a reduction in smaller, independent settings, which are being replaced by larger providers or chains. We are also hearing anecdotal evidence from councils that smaller settings, which often have longstanding relationships within communities, are being forced to close. While the business models of larger providers – through operating economies of scale – may allow them to remain financially viable, there is a concern that the streamlining of services in response to current funding pressures may come at the detriment of the support that can be offered to vulnerable children and their families.
- There has been a rise in the number of school-based nurseries from predating the pandemic. Council feedback to Coram’s annual national childcare survey suggests that this expansion of school-based provision may be compensating for reductions elsewhere in provision for 3 and 4-year-olds. Schools in particular are noted for their increased efforts to provide the 30-hour offer. However, school-based provision will not be the right fit for every family. In comparison to nurseries, schools are still more likely restrict early years places to school hours and not offer holiday provision.
The challenges facing providers
- The rising cost of living and inflationary pressures, on top of the systemic underfunding of early years provision, is significantly impacting the financial viability of early years providers, the quality and access of childcare provision, and the availability of good support for children with special education needs and disabilities (SEND).
- The LGA has long highlighted that funding for early entitlements is insufficient. Data from an Early Years Alliance survey in April 2022 found that for 86 per cent of settings, funding for three- and four-year-old early entitlements did not cover the cost of delivering places.
- Rising costs has meant that providers are having to pass costs onto parents and make cutbacks to balance the books. There are reports from some local authorities that early years providers are finding it challenging to provide the same level of high-quality food and activities that they could previously. We have heard that some settings are swapping certain foods for items of lower nutritional value, or providing less fresh fruit or vegetables. Providers may also stop providing hot food to children which is particularly challenging where this may have been the only hot meal a child received that day.
- Low rates of funding results in low pay for childcare workers. Childcare workers earn around 40 per cent less than the average female worker and almost half (45 per cent) of childcare workers claim state benefits. Rates of pay fail to recognise the vital work that childcare workers do and the important contribution they make to the future life chances of all children. Low pay is resulting in a recruitment and retention crisis in the sector, particularly for well qualified staff, which is impacting providers’ ability to provide the high level of continuity and care children need.
The Government’s proposed early years reforms
- The Government have proposed changing the mandatory staff to child ratio for two-year-olds in early years settings from 1:4 to 1:5. The Government’s rationale for changing the ratios is that it could help to increase access to childcare and allow providers to exercise greater professional judgement in deciding the way in which they staff their settings and meet the needs of children. However, the proposed changes will not address the structural challenges within the childcare system, and evidence suggests they will not alleviate short-term pressures.
- The Government has said that the proposed change to the staffing ratio for two-year-olds could reduce childcare costs by up to £40 for a family paying £265 per week. However, councils share the concerns of early years providers that the change from 1:4 to 1:5 in the 2-year-old ratio will not result in any meaningful savings for settings or lower costs for parents, whilst increasing difficulties for providers.
- An Early Years Alliance survey of early years providers in April - May 2022 found that just 2 percent of providers thought that ratio changes would result in reduced fees. This is primarily because the Government has estimated savings on the basis that all providers would increase their staff to pupil ratio to 1:5. However, half of providers (51 percent) currently look after fewer children than the maximum ratios, and only 5 percent would consider operating at the maximum ratio if it was increased to 1:5, as they do not believe they can provide the same level of care with relaxed ratios.
- Ofsted have identified that the pandemic continues to have a negative impact on children’s development. Fewer children are reaching developmental milestones and fewer children are ready to move up to Reception than would have been expected pre-pandemic. Practitioners are therefore needing to put in place additional support to help children catch up with their speech and language acquisition, and with their broader personal, social and emotional development. Reducing staff numbers and the support children receive at this time is therefore counterintuitive to the DfE’s education recovery efforts, as well as the ambition to drive up educational attainment and tackle the disadvantage gap.
- To improve access to quality childcare while reducing costs for families, it will be essential for Government to adequately fund early years entitlements to cover the cost of provision and enable providers to recruit and retain skilled early years practitioners.
Affordability of childcare
- While access to childcare is important for all families, it is particularly crucial for those on the lowest incomes, the most disadvantaged children, women and single-parent families. Childcare enables people to work; increase their hours or take on new opportunities; move out of poverty and improves families’ and children’s long-term life chances.
- The average cost of a part time nursery place for a child under 2-years old now stands at £137.69 per week, or over £7,000 per year. As the funding the Government provides for early entitlements often does not cover the cost of providing places, this results in providers having to make up funding through fees for charged-for services. Due to inflationary pressures, recent data shows that providers are having to charge more to parents compared to last year.
- The high cost of childcare continues to put significant financial strain on many families, particularly those on the lowest incomes. Analysis from the Social Market Foundation found that childcare accounts for 7 percent of household income among those paying for it, rising to 17 percent for those in the bottom income quintile. A third of those accessing childcare in the bottom quintile are in ‘childcare poverty,’ with childcare costing more than 20 percent of their entire household income. For households with an income of under £10,000, over half do not use formal childcare at all due to high costs.
- Women and lone parent households’ ability to work is particularly impacted by the prohibitive cost of childcare, which contributes to a high number of lone parent households living in poverty. An estimated 1.7 million women are prevented from working the hours they would like to due to a lack of suitable childcare, resulting in up to £28.2 billion of lost economic output each year.
- It is also important to note that due to current arrangements for 3- and 4-years olds families that earn higher wages are more likely to benefit from free early entitlements. This is because families who are working are eligible for an additional 15 hours of childcare support, whilst families who are not working do not benefit from this. This means that many families that need additional support will not benefit from it.
Reforming the childcare element of Universal Credit
- In addition to the universal offer of free childcare, working households who are in receipt of Universal Credit can claim back up to 85 per cent of their childcare costs up to a cap of £646.35 for one child, or £1108 for two or more children, per month.
- The cap on the childcare costs benefit claimants can claim has remained at the same level since 2005, even though childcare fees have more than doubled in that time. In 99 per cent of local areas, the average price of a full-time nursery place for a child under two-years old – who is not eligible for free childcare hours – is higher than the cap. Low-income families in areas such as London, where childcare costs significantly exceed the national average, are therefore particularly impacted by the cap. A review of the Universal Credit childcare cap is urgently needed to ensure that the financial support for childcare provided to low-income families through the benefits system is representative of the average childcare costs in each area.
- Claimants are also required to pay their childcare costs upfront, which continues to present a significant financial barrier to entering, continuing or increasing employment. can cause families to go into debt to cover the first payment.
- We therefore urge the Government to pay the Universal Credit childcare element before fees are required to be paid to the provider. There are several ways this could be implemented with mitigations against fraud, for example through a system of direct payments to childcare providers, similar to the system for Tax Free Childcare.