Parents set to face childcare ‘chaos’ as new data shows huge scale of financial losses facing early years sector - new modelling from Ceeda

Parents could struggle to access childcare places over the coming months, leading early years membership organisation the Early Years Alliance has warned, as new independent data suggests the childcare sector is at risk of a mass closures without urgent government intervention.

New modelling from independent research analysts Ceeda reveals that childcare providers in England are currently facing significant losses as a result of a combination of government underfunding and reduced parental demand for places.

Ceeda data reveals that, as of 8 June, early years providers in England were operating at average occupancy levels of just 37%, compared to 77% in spring 2019. If the take-up of childcare places continued at this level on average over the next 12 months, providers would face average losses of:

• £3.63 per funded two-year-old child per hour (a funding shortfall of 68%), and
  
  
• £2.53 per funded three- and four-year-old child per hour (a funding shortfall of 55%).

The modelling also shows that even if more parents start taking up childcare places, providers will still face significant losses. According to Ceeda, over the next 12 months:

• an average occupancy level of 45% would mean that a childcare provider would face average hourly losses of:
  
  
  • £3.06 per funded two-year-old (a shortfall of 57%)
  • £1.96 per funded three- and four-year-old (a shortfall of 43%)

• an average occupancy level of 55% would mean that a childcare provider would face average hourly losses of:
  
  
  • £2.59 per funded two-year-old (a shortfall of 48%)
  • £1.48 per funded three- and four-year-old (a shortfall of 32%).
    
    
• an average occupancy level of 65% would mean that a childcare provider would face average hourly losses of:
  
  
  • £2.26 per funded two-year-old (a shortfall of 42%)
  • £1.15 per funded three- and four-year-old (a shortfall of 25%).

In fact, even if occupancy levels were at an average of 77% as they were in spring 2019, inadequate government funding levels mean that childcare providers would still lose an estimated: 

• • £2.01 per funded two-year-old (a shortfall of 37%)
  • £0.90 per funded three-and four-year-old (a shortfall of 20%)

Early years providers in England have been allowed to open to all children since 1 June – however, significantly reduced parental demand for places and limits on how many children providers are able to care for has placed huge financial pressure on settings. Previous surveys from the Early Years Alliance found that 69% of nurseries, pre-schools and childminders expect to operate at a loss over the next six months, while 25% said that it is “likely” that they will be forced to close within the year.

The Alliance is campaigning for the government to commit to urgent transitional funding to support the childcare sector through this period. In a new report, The Forgotten Sector, published today, the organisation has highlighted the various areas in which the early years has been overlooked during the pandemic, and called on the government to: extend the financial support with costs such as extra cleaning being provided to schools to early years settings; extend businesses grants currently available to retail, hospital and leisure businesses to childcare providers; and extend the £1 billion ‘Covid-19’ catch-up fund for schools to the early years sector, as was initially announced.

Neil Leitch, chief executive of the sector, said: 

“The government says that it has done enough to support childcare providers during the coronavirus crisis, but these figures from Ceeda show that this couldn’t be further from the truth. 

“As we have long warned would be the case, the joint pressures of inadequate government funding and reduced parental demand for places means that many nurseries, pre-schools and childminders are losing money on every childcare place they offer. This is simply not sustainable.

“Even in areas where parental demand for childcare places remains high, providers are currently restricted on how many children they are able to care for under government guidance, which is going to place even more financial pressure on them over the coming months. 

“The fact is that the early years sector is at a crunch point, and unless urgent action is taken, we are going to see many, many more settings forced to close their doors over the coming months. This could mean chaos for parents – and particularly mothers – trying to access childcare in order to return to work at a time when the government is desperately trying to restart the economy.

“Ministers must now commit to providing the financial support that childcare providers need to remain sustainable throughout this crisis and beyond. Anything less puts the long-term viability of the sector as a whole at risk.”

Jo Verrill, managing director of Ceeda, said:

“The coronavirus pandemic has delivered a powerful reminder of the importance of early education and childcare in all its facets, from the base need to keep vulnerable children safe from immediate harm, to giving every child and adult the opportunity to reach their full potential in education and work. 

“There is much rhetoric on the importance of a child’s early years. Now more than ever, this must be matched by investment, if we are to protect the country’s vital early years infrastructure.”

CHILDCARE PROVIDER CASE STUDIES:

Toby Arnold, director of Teatimers Childcare Ltd in Buckinghamshire, said:

“It is like the death of a thousand cuts. There is no one thing that will finish us off because there are no clear scenarios for what September might look like. I could need all my staff, I could find that waiting and paying them has drained resources and I still have to make redundancies. It's just a case that one day we will reach the point we realise we should already have thrown the towel in.”

Wendy Hocking, manager of Holmhirst Pre School in Sheffield, said:

“We are not confident at all that we will be able to remain open. We are not a money-making setting, we don’t have an owner making money out of our setting but without prospective parents booking in, our future is uncertain. Redundancies and closure are on the agenda. We have been operating 28 years and fear this is our last.”

Liz Burnett, manager of Rotherfield Village Preschool in East Sussex, said:

“If we have to continue with vastly reduced numbers able to attend in September, this will have a huge impact on us financially. We may need to look at redundancies too as the furlough scheme will have changed. Long term, running on reduced child numbers will mean that we will probably have to close.”         

Childminder Kim Lupton of Kim’s Kiddiecare in Leeds, said:

“We are facing low numbers wanting to return, alongside minimum wage increases when staff are unfurloughed and return to work. My life has gone into my business and I am passionate about early years education and delivering high quality childcare but at this point, I’m not very confident at all that we will be able to remain open.”

Mary Elia, manager of Little Berries Pre-school in Southampton, said:

“We have suffered a loss of income private fee-paying parents, the cancellation of all fundraising activities, staff shortages meaning we cannot accept more children back and the cost of having to purchase additional items such as PPE and contactless thermometers.

"Our intake for the next academic year is the lowest it’s ever been as I cannot show prospective families round the setting. If it doesn't increase significantly by January, we will have to close."                                                                                  

Susan Lister, head of Playlanders Playgroup and Preschool in Cambridge, said:

“We’re very concerned about the future, particularly the medium- to long-term. Almost all our children are moving to reception in September, and we have been unable to do any recruiting because of the lockdown. We are likely to face serious financial pressures from September onwards, possibly leading to staff redundancies.”

Childminder Rose Dias of Cygnets Childcare in Redhill, Surrey, said:

“I’m not confident about the future. Some parents have sadly lost their job and so have reduced their contracted days, causing loss of revenue. In addition, I will need to pay the staff after Job Retention Scheme ends, despite my low income. 

“Under the current government guidelines, I also can’t bring new customers to view the setting and not many people want to leave their children without actually visiting the setting.  This is all going to be hard and I’m not currently sure what the future holds."        

EDITORS NOTES

The above shortfall estimates are based on Ceeda modelling on a range of childcare occupancy models, and have been obtained by comparing current delivery costs for private and voluntary pre-schools and nurseries (using data collected in Ceeda's April 2019 About Early Years study wave adjusted for CPI inflation and statutory wage rises) to current early years funding rates.

This modelling shows that, on average, over a 12-month period:

• providers operating at 37% occupancy would incur average losses of: 
  • £3.63 per hour (delivery costs of £9.01 vs an average funding rate of £5.38) on funded two-year-old places: a shortfall of 68%
  • £2.53 per hour (delivery costs of £7.10 vs an average funding rate of £4.57), on funded three- and four-year-old places: a shortfall of 55%.

Modelling other occupancy levels, Ceeda found that:

• providers operating at 15% occupancy would incur average losses of: 
  • £8.32 per hour (delivery costs of £13.70 vs an average funding rate of £5.38) on funded two-year-old places: a shortfall of 155%
  • £7.22 per hour (delivery costs of £11.79 vs an average funding rate of £4.57), on funded three- and four-year-old places: a shortfall of 158%.

• providers operating at 25% occupancy would incur average losses of:
  • £5.17 per hour (delivery costs of £10.55 vs an average funding rate of £5.38) on funded two-year-old places: a shortfall of 96%
  • £4.06 per hour (delivery costs of £8.63 vs an average funding rate of £4.57), on funded three- and four-year-old places: a shortfall of 89%.

• providers operating at 35% occupancy would incur average losses of:
  • £3.81 per hour (delivery costs of £9.19 vs an average funding rate of £5.38) on funded two-year-old places: a shortfall of 71%
  • £2.71 per hour (delivery costs of £7.28 vs an average funding rate of £4.57), on funded three- and four-year-old places: a shortfall of 59%.

• providers operating at 45% occupancy would incur average losses of:
  • £3.06 per hour (delivery costs of £8.44 vs an average funding rate of £5.38) on funded two-year-old places: a shortfall of 57%
  • £1.96 per hour (delivery costs of £6.53 vs an average funding rate of £4.57), on funded three- and four-year-old places: a shortfall of 43%.

• providers operating at 55% occupancy would incur average losses of 
  • £2.59 per hour (delivery costs of £7.97 vs an average funding rate of £5.38) on funded two-year-old places: a shortfall of 48%
  • £1.48 per hour (delivery costs of £6.05 vs an average funding rate of £4.57), on funded three- and four-year-old places: a shortfall of 32%.

• providers operating at 65% occupancy would incur average losses of 
  • £2.26 per hour (delivery costs of £7.64 vs an average funding rate of £5.38) on funded two-year-old places: a shortfall of 42%
  • £1.15 per hour (delivery costs of £5.72 vs an average funding rate of £4.57), on funded three- and four-year-old places: a shortfall of 25%.

• providers operating at 75% occupancy would incur average losses of 
  • £2.01 per hour (delivery costs of £7.39 vs an average funding rate of £5.38) on funded two-year-old places: a shortfall of 37%
  • 91p per hour (delivery costs of £5.48 vs an average funding rate of £4.57), on funded three- and four-year-old places: a shortfall of 20%.

Ceeda’s full briefing paper, including technical notes, is available at aboutearlyyears.co.uk/our-reports.