Nursery Management

Early years funding crisis – “Our sector needs support now”

  • Early years funding crisis – “Our sector needs support now”

The early years sector has proven itself as the fourth emergency service throughout the COVID-19 pandemic, and this lockdown has been tougher on everyone.

With parents juggling more work at home with childcare and home-schooling, and Ofsted and others highlighting the impact on children of the last lockdown, more people outside of the sector are now aware of the crucial role it plays in society.

Statistics from our recent survey revealed that 58% of nurseries are not confident they will survive until Easter due to low attendance rates and the disappointing change in funding arrangements.

Attendance figures were at 38% in mid-January, which just isn’t sustainable for childcare providers in terms of funded places or parent demand. And we know that the challenges of remaining open mean settings need more staff, not fewer, and are not able to make more use of the extended furlough scheme.

The government must recognise this contribution and address the sustainability issues facing the sector.

It’s time that early years providers are given the support they need to continue caring for and educating our youngest children.

Government support

There are some immediate steps the government could take alongside longstanding issues that need addressing. The most straightforward would be for the chancellor to announce that business rates are to be completely scrapped for childcare businesses.

Childcare providers should also be able to claim back VAT; there must be a recovery fund for providers and a review of the childcare funding rates.

Business rates are an unfair tax on space designed for shops, warehouses and factories, not the places that give children space to learn, grow and develop.

In March 2020 the government gave a business rates holiday to early years providers in England at the start of the lockdown, but this is set to resume in April 2021.

The average bill is around £11,000 so this reversal could be the straw that breaks the camel’s back for many.

In response to a 2018 petition on business rates and VAT in nurseries, the government stated that membership of the European Union was the reason it couldn’t amend the VAT rules that see nurseries pay VAT on the things they buy, but unable to reclaim the vast majority of these amounts.

Throughout the COVID-19 pandemic, we have been making the case for a recovery fund that needs to be provided either directly or through local authorities to help providers be sustainable.

The January census of children in settings was done at a time when occupancy was a lot lower than during a normal year.

However, providers are facing extra costs to support the children who are attending, with new resources, efforts to keep small groups apart, modifications to settings and more staff on-hand.

If overall place numbers are not supported, what will happen further down the line in the summer when parents are happier to send their children back to nursery? Where will the funding come from? And how will providers survive in the meantime?

Many organisations and bodies, including the Treasury Select Committee and the Education Policy Institute, are backing our view that early years funding must be reviewed in the longer-term – it’s vital that this happens.

Underspending issues

The current system used by local authorities for funding distribution is unwieldy, costly and time-consuming. This money also isn’t ring-fenced and is used time and again to offset budget pressures elsewhere in the overall education budgets.

In 2020/21, NDNA’s second report into local authorities’ early years spending, which we have recently published, uncovered that yet again, threequarters of local education authorities are still reporting underspends, totalling an astonishing £55.5 million from their 2019/20 budgets.

Of course we know that no one has a crystal ball, but 17 of these councils had more than £1m left underspent at the end of the year 2019/20 and only a fifth of those 94 local authorities with underspends planned to pass any of this budget through to providers.

Almost half of the councils with an underspend left the money meant for childcare places in their reserves. More councils were using any unspent funding to offset deficits elsewhere in their Designated Schools Grant budget, compared to last year’s report.

This is mostly to plug holes in their High Needs budgets, but some are just historical overspends over several years.

This robbing-Peter-to-pay-Paul approach is not a viable, sustainable option and just causes a problem elsewhere. Sadly, it’s often early education that suffers as a result.

Simplifying the whole system to create a single online childcare account for parents could address the dual problems of lower uptake and administrative complexity.

It would remove the temptation to use any unspent funds to bolster other struggling areas. But we said all this last year when we published our first underspends report, and although it caused a lot of noise and concern at the time, nothing was actually done to prevent it happening again.

Early years funding still isn’t ring-fenced, a comprehensive review into funding has not taken place, and PVI nurseries are still on track to be paying business rates from April.

There is no silver bullet when it comes to supporting the early years sector. If we want providers to be able to continue delivering high-quality early education and care to our youngest children, the government has to look at all these measures.

To level up the country and ensure that there are future childcare places when parents need them, the time to support the early years sector is now.

Share your concerns

Local authorities have a duty to provide sufficient childcare places, so need to support their childcare businesses.

  • Check out your local authority’s position regarding their funding in our spreadsheet, which we put together for Early Years Funding 2019/20: Underspends and contingency budgets one year on
  • If you’re unhappy with the position your local authority has given, raise it with your local early years representative on your Schools Forum, which makes decisions on funding and distribution
  • If your local authority does not have a PVI nursery representative on their Schools Forum, contact their administrator and ask why
  • If you have concerns about your business’ viability, seek urgent financial support from your early years team, who can give Discretionary Grant funding to struggling businesses – NDNA wrote to all local authorities to outline the issues that nurseries are facing with low attendance and higher business costs, asking them to make sure that they supported struggling childcare businesses

Purnima Tanuku OBE is Chief Executive of NDNA. For more information and support, visit