Nurseries and childminders in England who rely on fees from parents may be forced to close or quit the sector, creating a national shortage of childcare places, according to new research published by the Institute for Fiscal Studies.
The study found that the coronavirus lockdown caused severe financial pressures for providers that received the bulk of their income from fees rather than through the government’s childcare entitlement, leaving about 25% of private sector nurseries vulnerable.
“Childcare closures during the lockdown saw providers’ incomes take a big hit. While government support cushioned the blow, especially for settings mostly reliant on public income, we estimate that half of childcare providers were at risk of earning less than £4 of income for every £5 of cost during the lockdown if they took in no fees from parents,” said Christine Farquharson, senior research economist at the IFS.
“The lockdown hit providers of all sizes and in all areas, but childminders – who entered the crisis with weaker finances on average – were more exposed than other types of settings.”
Purnima Tanuku, chief executive of the National Day Nurseries Association, said the research highlighted the unsustainable financial position of many nurseries, with more than 70% of nurseries saying they expected to make a loss over the coming months.
“Many of these same nurseries remained open to key workers’ children during lockdown at the loss of many thousands of pounds. They now need urgent support,” Tanuku said.
“Nurseries have also had to invest in making their nurseries safe – such as installing partitions and additional handwashing stations – but with lower income and higher costs, they are really struggling for survival.”
The IFS report came a day after a report by the Trades Union Congress warned that women with children risked being “pushed out of the workforce” by the lack of child and after-school care, with after-school clubs remaining closed because of Covid-19 restrictions.
While childcare providers were allowed to reopen to all children from the beginning of June, demand for childcare places remained 70% below pre-lockdown levels in the following month. The researchers estimate that without further government support, every 5 percentage point drop in fee income meant that another 3-4% of providers risked going into “significant deficit”.
Neil Leitch, chief executive of the Early Years Alliance, said: “If the government is serious about rebooting the economy, it needs a sustainable early years sector to ensure that parents have access to childcare they need in order to work.
“We urge the government to listen to the experts, look at the evidence and accept that urgent action is needed if this vital sector is going to survive the next few months and beyond.”
Claire Crawford, a reader in economics at the University of Birmingham, said that Covid-19 had magnified concerns about the financial viability of privately-funded childcare provision.
“While the government might have good reason to prioritise supporting providers of free childcare hours, doing so may not be the best way to secure the capacity provided by otherwise viable businesses that tipped into a temporary deficit as a result of the pandemic,” Crawford said.
Effective government support could include subsidies, changes to regulations to help lower costs, or additional support in the event of further lockdowns, according to the IFS.
The research was the result of a large-scale effort to analyse the sector’s finances, funded by the Nuffield Foundation and carried out by a team of researchers across the IFS, the University of Birmingham, Frontier Economics, the Coram Family and Childcare trust, and the University of Surrey.
A Department for Education spokesperson said: “Nurseries, preschools and childminders are integral to this country’s recovery from the coronavirus pandemic. That’s why we set out from the start that we would continue providing councils with funding for free childcare entitlements for 2, 3 and 4 year-olds, even if settings were closed – which the IFS itself acknowledges has helped protect the sector.
“Early years settings have received significant financial support over the past months and will benefit from a planned £3.6bn funding package in 2020-21 for free early education and childcare places.”
