Free Childcare and Nursery Providers

Peter Bone Excerpts

Wednesday 24th June 2015 Westminster Hall

[Julian Sturdy (York Outer) (Con)]

I beg to move,

That this House has considered free childcare provision and nursery providers.

It is a privilege—[Interruption.]

[Mr Peter Bone (in the Chair)]

Order. I am sorry to interrupt. Would Members leave the Chamber quietly, please?

[Julian Sturdy]

It is a privilege to serve under your chairmanship for what I think is the first time, Mr Bone, and to have secured this debate.

As was made clear in the Queen’s Speech, the Government are introducing measures to help working people by increasing the provision of free childcare. The announcement was welcomed by many people up and down the country and in my constituency, and it provides us with a great opportunity to launch a full review of childcare funding.

I secured a debate in this Chamber on nursery funding back in 2013, in which I explained that one of the main reasons for the continuing rise in childcare costs is the fact that nursery providers have to cross-subsidise the free entitlement funding provided by the Government. I stated that although the Government are the biggest procurer of nursery places, they are the worst culprits when it comes to paying for the places they procure. I am sorry to say that little has changed since then. For years, free provision has been subsidised by providers and parents due to a lack of adequate funding.

Doubling provision should benefit parents in my constituency and across the country. However, there is a danger that not implementing the change properly will lead to a more expensive system and more expensive childcare from the outset. The free hours could ultimately harm the very people the policy is supposed to help.

The Government have promised to include in the Childcare Bill a proposal to double free provision for three and four-year-olds in England. The current allowance is 570 hours of free early education or childcare a year, which works out at 15 hours a week for 38 weeks. It is thought that up to 600,000 families could benefit from the doubling of the provision and save as much as £5,000 a year. The change is due to come into force in September 2017, although there will be pilots in September 2016.

I have two children of my own, so I am fully aware of how expensive childcare can be. The cost of childcare is one of the biggest barriers that the UK’s 2 million single parents face to finding and staying in work. I therefore want to make it clear that I welcome and support the policy. At the same time, however, I want to offer a word of caution about the policy’s implementation and the impact it could have on nursery providers.

Since the announcement in the Queen’s Speech, I have been approached by several owners of nurseries in my constituency, who have all been keen to get clarity about exactly what the policy will mean for their businesses. Among them were the owners of Station House children’s day nursery in Dunnington and of Polly Anna’s nursery in Haxby. Both providers see the benefits of such a policy, but they agree that providers will be able to offer the increased number of hours only if the funding covers the cost of provision. In many areas, it does not.

Over the past few years, I have had the privilege of visiting a number of nurseries in my constituency—Little Green Rascals near Elvington, Sunshine day nursery in Huntington, Tiddlywinks in Osbaldwick, Quackers in Copmanthorpe and Polly Anna’s nursery in Haxby, to name but a few. Having met the owners of those nurseries and kept in contact with them over various funding issues, it is clear to me that they do a tremendous job. Nurseries carry out an essential service for parents and families, not just in my constituency but across the country. However, that essential service is increasingly under threat as a direct result of the funding issues.

As we all know, parents in the UK receive help with their childcare through free early education. In England, central Government allocate money to local authorities through the early years block of the dedicated school grant, with an estimated total spend of £2.2 million a year. However, there is a great disparity across the country in how much is spent on childcare by individual local authorities. Therein lies the problem. The National Audit Office found that free entitlement varied from £2.78 to £5.18 an hour, and that the national average was £3.95. My constituency receives only £3.38 an hour from City of York Council. The sad truth is that funding for the 15 hours a week of free provision falls well short of the cost. To be precise, the shortfall is about £800 a child, which results in nurseries running at a loss for those 15 hours. They therefore have to subsidise that loss through the price of childcare outside the free entitlement hours.

Following my previous debate, which centred on those issues, I secured a meeting with the former Minister to raise my concerns face to face, alongside a group of local nursery providers from York. The Government have been aware of the problem for some time. The Minister has been proactive in his discussions with nursery providers, and has met providers from my constituency. Some positive news is starting to come out, including the announcement that the Minister will oversee a funding review of the entitlement, which is due to start in the next few weeks.

I warmly welcome the Minister’s commitment to raising the hourly funding rates paid to providers for places. However, the review is being undertaken at a time when costs to nursery providers are set to increase further, with pension auto-enrolment responsibilities coming in for many small and medium-sized nurseries. The pressure increases when the payment for funded hours is delayed. More than 40% of local authorities are paying more than a month after the start of term, although, as we all know, the law requires them to pay within 30 days.

I am acutely aware that the burden of business rates and VAT is continuing to push up the cost of childcare, which constrains the ability of nurseries to offer more places. The average annual business rate paid by nurseries is almost £16,000, which is why I welcomed the intervention of the Department for Communities and Local Government. In January, it wrote to all English local authorities to ask them to consider granting business rate relief to childcare providers. Local authorities have had that power since the Localism Act 2011 came into force, and the Government will fund 50% of any discretionary relief schemes that councils introduce.

Following the DCLG’s announcement, I wrote to my local authority, City of York Council, to ask it to consider granting business rate relief to childcare providers in the area. Sadly, it refused. Interestingly, when the chief executive addressed the National Day Nurseries Association conference earlier this month, she reported that she had written to every local authority in England on the issue, but had been told that none would be implementing business rate relief for nurseries, which I find extremely disappointing.

Although there are political differences over childcare policy, there is broad support for the current approach of both supply-side and demand-side subsidies. However, compared with many other developed countries, the public funding of childcare in the UK is complicated to say the least. It is complex and expensive to administer for Governments and complex for providers and parents. I therefore believe that the policy to double free provision for three and four-year-olds provides a perfect opportunity to launch a full review of childcare funding and set in place the changes that will ensure simplicity, progressive levels of support, quality—that is absolutely key in this field—and accessibility.

Take-up of the current 15 hours of free provision for three to four-year-olds is at 96%, but it is much lower for two-year-olds. That is because some providers have opted out because they believe that the hourly funding rate is not financially sustainable. Many nurseries operate complex cross-subsidy mechanisms, and they rely on working parents of three and four-year-old children to purchase extra hours on top of their existing 15 hours of free provision. As I have made clear throughout the debate, I have sympathy with providers regarding underfunding. I hope that the upcoming funding review led by the Minister will bring meaningful reform.

Only quality provision helps narrow the gap between disadvantaged children and their peers. The owner of Polly Anna’s nursery in Haxby in my constituency told me that when he opened his nursery in the early 1990s, only doctors and accountants could use it; it was unusual for women to go back to work. Now we have flexible working, and free childcare has opened up day care to a range of families. Doubling free provision will only add to that trend, but it can be successful only if it goes hand in hand with a full review of childcare funding.

Money is allocated to local authorities through the dedicated schools grant. For three and four-year-olds, the rate per pupil is largely determined by historical precedent; it is not based on the characteristics and needs of the children. Early years funding should be brought more closely in line with schools funding, whereby money is allocated on the basis of a larger number of criteria, which include pupil numbers, deprivation and attainment to name a few. That would ensure that funding matched children’s needs and the cost to providers of providing early education. In addition, we could consider a national formula with two rates—one for London and one for the rest of England—similar to the funding formula for two-year-olds, which is fairer and more transparent. Local authorities receive a flat hourly rate per child of £4.85, supplemented by an area cost adjustment in places where wages are higher. That would be a much clearer funding system and would help to streamline the number of complex formulas in place.

Overall, although childcare represents a significant outlay to parents, it is important to remember that by its very nature it will always be expensive. It is not fair to suggest that high childcare costs are simply the result of providers charging high fees to hard-pressed parents. The reality is more complex. Childcare should never be provided on the cheap, and we must ensure that measures to make it more affordable do not compromise its quality. For me, that is crucial. Although successive Governments have increased help with childcare costs, parents in Britain still spend a higher proportion of their income on childcare than parents in most other developed countries. On top of that, some childcare providers struggle to break even. All that is indicative of a childcare system that is not working.

I view the proposals to double free childcare provision as an opportunity to fix these long-standing problems once and for all. We have a chance to make a real change to help not only nursery providers but parents who use such facilities, and I hope the Government will grasp it with both hands. I am encouraged by what I have heard from the Minister in our previous conversations on the issue.