Nursery Sector: Sustainability

Chris Green Excerpts

Wednesday 10th October 2018 Westminster Hall

[Chris Green (Bolton West) (Con)]

I beg to move,

That this House has considered the sustainability of the nursery sector.

It is a pleasure to serve under your chairmanship, Mr Gapes. I appreciate the opportunity to have this important debate on the sustainability of the nursery sector. In recent years, I have increasingly seen and heard concerns about the sector, both through the media and through conversations in my constituency. What really brought the issue to a head for me was a meeting with the Federation of Small Businesses and a couple of local nurseries. They raised their current concerns about sustainability, rising costs, and the lack of a level playing field within the sector. Following that, I surveyed all of the nurseries in my constituency and got an incredibly strong response. Most of the nurseries replied, which shows that there is a great deal of interest in improving and reforming this area.

I will first talk about the enormous contribution that nurseries make to children and families in all of our constituencies. Nurseries provide a wonderful start in life for children. They provide opportunities for socialisation for children who are at home during their earliest years, so that they can meet other children in increasingly large age-based groups. When I say “socialisation”, I do not mean socialism; I mean the broader sense of meeting other people in the local community. Nurseries are also valuable for helping children prepare for primary school, as we know that people have concerns about how ready children are to take that step in their lives.

Nurseries are also important for parents, who can get advice about what they are doing as they raise their children, and meet other parents. Sometimes, having young children can feel very isolating for parents, and nurseries provide a good forum for them to meet other parents, get advice, and feel confident that they are doing the right thing—or to seek further advice if, perhaps, they are not. Nurseries provide parents with a very useful break from the children, and increasingly both parents work. The traditional, old-fashioned style of one parent, typically the mother, staying at home to raise the children is not so prevalent these days. Normally, both parents work, and nurseries provide a very important service, enabling both parents to go to work or perhaps re-enter the workforce.

Working in a nursery can be a great deal of fun: it is an enjoyable, rewarding form of work, and a nursery is also a really good business to own and run, because it is an interesting part of a local community. People who work in nurseries can see the children develop over the years, and the importance of the contribution their nursery makes to all those families.

The initial introduction of the universal 15 hours a week of free childcare was followed by a further 15 hours, but since then, there has been concern that funding has not kept pace, and does not provide all the moneys that nurseries require for the care that they deliver. Funding not keeping pace with costs is a concern, and nurseries have been finding ways of supplementing that income without increasing their hourly rate. For example, some nurseries have been charging additional money for lunch that far exceeds the actual cost of that lunch. Across the country, the average charge is about £10 per day. That is a very significant amount of money for a family to have to contribute on a weekly basis when they believed that the 30 hours of childcare was free. There is a strong narrative that what is offered is 30 hours of free childcare, which leads to problems for families when they are managing their budgets. They may have had a family conversation about whether a parent staying at home should go back to work, and what the household accounts would look like if they did, but if they then get a request from the nursery for more funding, that creates problems for that family. Having to have a conversation right from the off about what looks like a demand for more money also creates a difficult start to the relationship between the family and the nursery.

This support is there to help people; of course, there is an aspect of education for the children, but the support is clearly also there to support people in the workplace. However, it last for only 38 weeks of the year. Most people do not work 38 weeks in the year, so what about the remaining weeks in which the family has to make up the difference? Again, many people have the understanding that what is offered is 30 hours of free childcare a week; they would not think that meant 30 hours of free childcare just during school term time, in essence. Of course, that is a concern for many parents, but especially for parents on very low pay, for whom any surprising additional outgoings will be quite a shock to the system.

Across my constituency, nurseries have raised concerns about business rates. If children are supported for 38 weeks, they will often attend for 38 weeks; the parents will look after the children for the rest of that time, or will perhaps find some mechanism involving their extended family. However, the business rates are set as though the business is being operated for the entire year, so if that nursery is over the threshold to pay business rates, it will in effect be receiving the money for 38 weeks but paying business rates for 52 weeks. If there is not flexibility over that 30 hours of bringing in more money, that creates a challenge.

There is also a concern about VAT. If a nursery is associated with a primary school, that nursery has the ability to reclaim VAT, because it is part of an educational institution. However, a nursery not associated with a primary school does not have the opportunity to claim that money back, which does not demonstrate a level playing field between the two. That is a problem. Councils also take a cut, and I welcome the fact that the Government have driven the expectation that the amount of money going from national Government to the council and then on to the nursery will go up from 93% to 95%. I am pleased that Wigan Council has already achieved that goal of 95% of money going to the nursery, and that Bolton Council is a level ahead, with 97% of its money going from the council to the nursery. It is important that councils are recognised for that commitment to ensure as much money goes to nurseries as possible.

[Julie Cooper (Burnley) (Lab)]

Does the hon. Gentleman accept that the fact that nurseries are having to look for other ways of raising funding, including charging for meals—I have heard about all sorts of things, such as taking in ironing, or baking and selling cakes—indicates that insufficient funding is coming to nurseries full stop, and that that should be the starting point for dealing with this issue?

[Chris Green]

I am very sympathetic to that view. Fundraising by nurseries or other organisations does have a positive aspect for those organisations, but I am very sympathetic to the view that councils have been squeezed, and it is challenging for councils to pass on as much of that money as they would like.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

I congratulate the hon. Gentleman on securing the debate. He is raising some important points about top-up fees and business rates, and their effect on nurseries’ finances. I should say that we are fighting to keep five outstanding local authority nurseries open in Salford, not far from Bolton. They have been put at risk because the Government have changed the way they fund early years provision, leaving our cash-strapped Salford council to find £1.5 million this year. He has outlined how he values nurseries, so does he agree that we should not be in the position of losing any outstanding nurseries? I am sure he would not want to lose five nurseries in his constituency. Will he join me in urging the Minister to help Salford and other authorities whose nurseries are now under threat?

[Chris Green]

The hon. Lady and I share a common position. We ought not to be losing any provision, and certainly not the outstanding provision in her constituency. I welcome the Government’s consultation, because it recognises that when new schemes come along, with the pressures on councils, we have to reconsider the ongoing funding and support. The Minister might be able to answer the hon. Lady’s question in that regard.

There is also concern about the ratio of children to carers and about when the bands kick in. Some nurseries have mentioned that perhaps there could be adjustments. It is a complicated subject, so I will not go into the details, but I simply raise that as a concern. Will my hon. Friend the Minister also look at best practice across European countries to see what they do and what works there?

There is a sense that perhaps there is not sufficient flexibility within the system beyond the rigid bands that are set out. I will read out one of the responses to my survey to give a slight sense of the feeling:

“I feel that a professional should be able to decide what ratio would be required depending on the children in each room as well as the level of qualification of staff etcetera.”

There is a sense that if there are talented, experienced and well qualified staff, the ratio needed for a certain group of children might be different from that for a more challenging group of children with staff who are not as well qualified and not as experienced. A little more flexibility might perhaps be considered.

Sometimes a nursery cannot take a child when the family request it at the last minute, because all the age groups are at their limit. Perhaps one parent does not normally go into the office on a Friday, but there is a big project at work and they are required to attend, and the nursery has no space or cannot hire a member of staff just for the one additional child for that day. Because of the way the rules are applied, the nursery does not feel that it can say, “Okay, for this one day we will allow a little flexibility.” Perhaps that could be recognised and allowed within the system, because at the moment some nurseries say that they cannot take a child in those circumstances which causes a problem for the child, for the parents and for the place of work. Could that be resolved with a little flexibility? It would have to be monitored so there was no abuse of the system, but I think it would help all parties concerned. Of course we want transparency, but sometimes there is a conflict between ticking the boxes and trusting the professionals to run a service. We need a slightly better balance between the two.

I want to make the point that nurseries are not right for all children and all families. We ought to recognise that in families where one parent chooses to stay at home to raise the children, it is a wonderful, positive thing, but sometimes parents feel they are being told they are making the wrong decision because they have only one income and they are taxed to support other people who have two incomes. It is almost as though the state tells them that they are doing the wrong thing and they should have someone else look after their children and go off to work.

I am pleased that the Minister is having a consultation, and I have some points that I wish him to address in his speech later. My first point is on the hourly rate of support within the 30 hours. If the entire cost of childcare is not covered, families and nurseries ought to be clear that the childcare support is not free and should be seen more as a contribution towards childcare. Following the example in Scotland and what will soon be the example in Wales, there should be an exemption from business rates for nurseries and equality between independent nurseries and those associated with schools. They should all pay VAT or all be exempt.

--- Later in debate ---

[Mark Pawsey (Rugby) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gapes. I congratulate my hon. Friend the Member for Bolton West (Chris Green) on introducing this morning’s important debate.

My interest in the sector arose as a consequence of an invitation to visit Pathfinders Day Nursery in my constituency, which is based at Crescent School in Rugby, to discuss the challenges faced by the sector with Alison Dyke, the owner of the nursery and the Warwickshire chair of the National Day Nurseries Association. My interest was aroused partly because I know about the importance of providing 30 hours of quality childcare and nursery education to our youngsters to give them a great start in life and to parents, particularly because it enables those parents who want to get back into the workforce to do so.

My interest was also aroused as a businessman. I was a businessman for 25 years, and some of the issues that were drawn to my attention related to the sustainability and viability of a fast-growing small business sector. I wanted to understand the business implications. A great deal of what I learned at my meeting related to funding, which earlier speakers mentioned.

As a fellow Warwickshire MP, the Minister will be aware that there is variation in the amount of funding that different authorities receive. The national headline funding rate is £4.94 per hour, but as the county authority, Warwickshire receives £4.30 an hour. I had assumed that that meant £4.30 an hour paid to the childcare provider. That, of course, is not the case, because local authorities are entitled to take a deduction. In Warwickshire, that deduction amounts to 5%, which is used by the local authority to fund the early years special educational needs team, to provide some business support and to contribute to the early years provider. That results in a rate of £3.96 being paid to childcare providers in Warwickshire, which Alison tells me is really not enough to provide high-quality childcare or anything more than a bare bones service.

As the Minister will be aware, there is research to support that contention: Ceeda has found that the hourly cost to a provider of each place for a three or four-year-old is £5.08, whereas the average Government funding is £4.34 an hour and Warwickshire pays its providers £3.96 per hour. Ceeda calculates that that shortfall of about £1 an hour adds up to an annual funding shortfall of £63 million for the 30 hours offer for three and four-year-olds nationwide.

The National Day Nurseries Association has found that since 2017, when the 30 hours policy was introduced, closures have increased by 47%, largely as a consequence of financial pressures. It has also found that 19% of nurseries expect to make a loss, while only 43% anticipate a profit or surplus. I have already mentioned the difference between the costs of delivering the service and of funding it. Survey respondents highlighted administration challenges in the sector: 85% said that there is now additional administration to do, while 58% said that managing the complexity of the system is among the challenges they face.

Mrs Dyke is delighted that some parents are now able to access funding and provide a nursery education for their children in a way that they could not before. She and Pathfinders are very proud of the high-quality environment that they offer to children between the ages of six months and five years. They allocate 28 places for three and four-year-olds who receive the extended 30 hours’ funding. Her assessment is that children who attend nursery make extremely good progress in their development and gain an enormous advantage, but she is concerned about how to fund it—I understand that the rate has now been frozen until 2020, despite the increasing costs of labour, staff training and service provision. She is also concerned that for children on the 30-hour funded places, providers are being required to provide a no-frills service, which does not equate to quality childcare.

My hon. Friend the Member for Bolton West referred to the fact that many providers are asking parents to pay for additional services; Mrs Dyke highlights snacks and other food, as well as other consumables and specialist sessions.

[Chris Green]

There is also an additional cost for those parents who need 40 hours of childcare and have to pay a separate rate for it. They may not have a higher income—they may still be on a very low wage—yet they may be subsidising additional hours for other parents who are on the 30 hours.

[Mark Pawsey]

That is exactly my constituent’s point: there is a differential, and those on the higher rate are effectively subsidising those on the Government-funded rate. A further problem that Mrs Dyke identifies is that parents are not obliged to pay for the additional services. If all parents refused to pay it, more businesses would become unsustainable, quality would be compromised and providers would have to either stop offering the 30 hours or shut down completely. At a time when we are working hard to extend provision to more and more children, that is a matter of concern.

I know that the Minister is aware of Mrs Dyke’s concerns, because I wrote to him about them and he was kind enough to send a prompt reply, which I have passed on to her. I look forward to his speech; I hope that he will share some early indications of the results of the Department’s evaluations and that we will continue to push forward and develop this very important sector.

--- Later in debate ---

[Chris Green]

From London to York, stopping at Rugby, Salford and Burnley along the way, there has been broad consensus, captured by the hon. Member for Batley and Spen (Tracy Brabin), that there is increasing pressure on the system that is challenging the sustainability of the nursery sector. Some nurseries have closed; in my constituency others feel under threat and are eating into their reserves. I welcome the Minister’s comments; I know he will take away our concerns. I was surprised there was a Brexit angle in this debate—it seems to get everywhere. I hope he will take every opportunity with the Chancellor in the run-up to the Budget.

Question put and agreed to.

Resolved,

That this House has considered the sustainability of the nursery sector.