Government underfunding drives rising childcare costs as cost-of-living crisis hits the early years sector, new Alliance survey reveals

More than a third of early years providers in England planning to increase childcare fees this year say they would not do so if government funding was enough to adequately cover their costs, while four in 10 said that they would be raising childcare fees by a smaller amount, a new survey of nearly 2,000 nurseries, pre-schools and childminders by leading early years organisation the Early Years Alliance has revealed.

The survey, which was run in parallel with the parent survey launched by campaign group Pregnant Then Screwed and parenting forum Mumsnet, also published today, ran from 17 – 22 March 2022 and received 1,970 responses.

It found that:

Of the 66% of early years providers have confirmed they will be increasing childcare fees this year:
- 43% say if government funding covered the cost of delivering places, they would be increasing fees by a smaller amount
- 35% say that if government funding covered the cost of delivering places, they wouldn’t be increasing fees at all
86% of providers delivering funded three and four-year-old places say that the funding they receive is less than the cost of delivering places, and of those whose rate has been confirmed as increasing in April 2022, 90% say that this will not be enough to cover the cost of delivery

30% of settings are currently operating at a loss and 34% of settings expect to be operating at a loss in 12 months’ time

The survey also reveals the toll that government underfunding is putting on the early years workforce itself. It found that:

73% of respondents haven’t had a pay rise in the past two years
15% (roughly 1 in 6) of respondents are currently, or have previously been, in receipt of Universal Credit
5% (1 in 20) of respondents have had to use a food bank over the past two years
31% of respondents are currently overdrawn in the personal bank account or accounts
Almost half (48%) respondents are actively considering leaving the early years sector (42%), have already confirmed they are leaving (5%) or have already left (1%)

In a damning indictment of government policy, a huge 98% of respondents say the government isn’t doing enough to support the early years sector.

The parallel parent survey carried out by Pregnant Then Screwed and Mumset of around 27,000 parents found that:

62% of parents say that the cost of childcare is now the same or more than their rent/mortgage

25% of parents say that they have had to cut down on necessary expenses such as food, heating or clothing to afford childcare

43% of mums said that the cost of childcare has made them consider leaving their job

40% said they have had to work fewer hours than they would like because of childcare costs

Commenting, Neil Leitch, Neil Leitch, chief executive of the Early Years Alliance, said:

“It is unacceptable that so many parents are not only struggling to meet their childcare costs, but often are also being forced to make sacrifices in their careers as the result of a lack of affordable, accessible care and education.

“Early years funding has continually failed to keep up with soaring costs, leaving many providers with no choice but to increase fees in the coming year: it speaks volumes that over a third of our survey respondents said that if they were sufficiently funded, they wouldn’t be raising fees at all this year.

“With the vast majority of providers saying that the funding they receive is less than the cost of delivering places and even more worryingly, with even those that are set to receive funding increases in April telling us that this won’t be not enough to cover delivery costs, things are going to get a lot worse before they get better.

“Providers are now facing a cliff edge, with more than a third of early years businesses currently operating at a loss (30%) and even more (34%) expecting to operate at a loss in a years’ time – but this could all be avoided if the government finally admitted there is a problem and took action to plug the widening funding gap.’’

“Early years providers offer a lifeline for working parents and vital early education for young children, but it is becoming near-impossible for them to offer these critical services at affordable prices. The government needs to address the sector’s funding gap before more parents – and especially mothers – are forced to pay ever-increasing prices and compromise their careers to ensure their child can receive good quality care and education.”

EDITOR NOTES

The Alliance survey found that:
- 72% of providers delivering funded two-year-old places say that the funding they receive is less than the cost of delivering places
  - Of those whose rate has been confirmed as increasing in April 2022, 80% say that this will not be enough to cover the cost of delivery
- 86% of providers delivering funded three and four-year-old places say that the funding they receive is less than the cost of delivering places
  - Of those whose rate has been confirmed as increasing in April 2022, 90% say that this will not be enough to cover the cost of delivery
- 66% of providers have confirmed they will be increasing childcare fees this year – however, of those:
  - 43% say if government funding covered the cost of delivering places, they would be increasing fees by a smaller amount
  - 35% say that if government funding covered the cost of delivering places, they wouldn’t be increasing fees at all
- 87% of providers say that they are seeing an increase in electricity and gas bills at the moment (67% say a ‘significant’ increase)
- 30% of settings are currently operating at a loss
- 34% of settings expect to be operating at a loss in 12 months’ time
- 81% of settings with financial reserves have had to use them over the past year (41% have had to use them ‘regularly’)
- 75% of settings with financial reserves say it’s likely they’ll have to use them over the next year (40% very likely, 35% somewhat likely)
- 73% of respondents haven’t a pay rise in the past two years
- 15% (1 in 6) of respondents are currently, or have previously been, in receipt of Universal Credit
- 5% (1 in 20) of respondents have had to use a food bank over the past two years
- 31% of respondents are currently overdrawn in the personal bank account or accounts
- Almost half (48%) respondents are actively considering leaving the early years sector (42%), have already confirmed they are leaving (5%) or have already left (1%)
- 98% of respondents say the government isn’t doing enough to support the early years sector.
DfE Spending Review policy documents from 2015, released following the Alliance's two-year Freedom of Information battle, stated:

“There are a number of factors that could risk the sustainability of the [three- and four-year-old] entitlement – from NLW pressures to supporting children with SEND. Fully funding them all is not affordable – by 2020-21 it would be a 3-4yo rate of £7.49, and potentially cost for the uplift alone of over £2bn. We will make reforms and expect providers to become more efficient in order to reduce this cost.”

The same document also acknowledged that the introduction of the 30-hours policy was likely to result in price increases for parents, stating:

“Provider costs vary substantially between age groups – primarily because of statutory ratios. Providers generally adopt a more-or-less flat pricing structure across the age phases. Currently this is possible because the free entitlement is only 15 hours. When Gvt purchases the majority of ‘cheaper’ three- and four-year-old places, it will become harder for providers to price in this way. Providers may, therefore, increase prices for younger children – potentially by as much as 30%. This could stop parents returning to work while their children are younger.”

This acceptance of inevitable price increases comes despite the fact that the document goes on to state that:

“a 10% reduction in the cost of childcare might lead to a 1.4% increase in the employment rate for married mothers with pre-school age children.”

The FoI documents are available .

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