Nursery Sector: Sustainability

Tracy Brabin Excerpts

Wednesday 10th October 2018 Westminster Hall

[Tracy Brabin (Batley and Spen) (Lab/Co-op)]

It is an honour to serve under your chairmanship, Mr Gapes. I thank the hon. Member for Bolton West (Chris Green) for securing this important debate. It has been absolutely fantastic to hear so many contributions from Members across the House.

I pay tribute to the hon. Members for Bolton West and for Rugby (Mark Pawsey), who are obviously listening MPs and are very much connected with their communities. The survey that the hon. Member for Bolton West instigated was a great tool for getting to the nitty-gritty of what is going on in his community. He talked about business rates, about primary schools that cannot get their VAT back when non-school nurseries can, and about ratios, which I am sure the Minister will want to look into. Given the way the world works now, we need flexibility more than ever. The hon. Member for Rugby talked about the stark costs and the shortfall of £1 an hour in his community, and asked how nurseries can keep going with that shortfall.

My hon. Friend the Member for Burnley (Julie Cooper) has worked very hard with the maintained nursery sector in her area—in fact, I visited a group of nurseries in her community. She said that they are a lifeline for many families. She made a powerful argument, and she is a massive advocate for her community.

I am so grateful that my hon. Friend the Member for York Central (Rachael Maskell) made a contribution, because she was an early implementer and was at the coalface of the roll-out, so she has seen the effects of the funding shortfall. I am glad that she mentioned Sure Start and SEND provision, which are vital parts of our offer for families. I congratulate her sister, who is working very hard in the sector.

My hon. Friend the Member for Worsley and Eccles South (Barbara Keeley), who is no longer in her place, made a powerful intervention about losing five outstanding nurseries, and she talked about the prospects for SEND children. My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) has done incredible work in her community, where the school for deaf children potentially faces closure. Her work on the Treasury Committee was really helpful a few months ago in helping us to understand the landscape in more detail, and it gave us a granular understanding of the funding shortfall. I congratulate her on her work and on the way she has supported her community. It is a pleasure to follow so many fantastic contributions.

The Minister and I have discussed the financial sustainability of the early years sector many times in the Chambers of this House. Our discussions have focused on the funding levels the Government set for their policies. As hon. Members are aware, Government-funded childcare schemes have become an increasingly large part of early years settings’ incomes in recent years. The biggest single change was arguably the introduction of 30 hours of free childcare per week, which came into effect in September 2017. In many instances, those free extra hours result in some financial support being available for all the childcare hours a family uses in a week. Of course, there is a wider discussion to be had about top-ups and the additional charges placed on those hours, but it is undeniable that, for many working families, financial support is welcome overall. However, the change means that what nurseries and childminders can charge is limited, as a larger proportion of their income comes from an amount set by central Government.

That would not be a problem, however—this is where the Minister and I stop agreeing—if the funding levels set by the Government were not too low. I do not want to ruin the surprise for anyone, but I imagine that the Minister will point to a report by Frontier Economics and to a 2016 National Audit Office report that called the Government’s spending review “thorough and wide-ranging”. I have heard that response many times, and read it in the responses to many written questions. However, I want to push the Minister a bit further today. In the same sentence in which the NAO said that the review was “wide-ranging”, it also stated that the review

“used a variety of sources, including evidence from 2,000 providers and other stakeholders.”

Although the Government did receive about 2,000 provider responses to its call for evidence about delivery costs, they subsequently admitted that, because the providers’ responses

“were often not supported by figures”,

they were

“unable to determine from the responses what providers’ unit costs were”.

I would therefore be grateful if the Minister could confirm the number of providers whose evidence was used in the review. If the number is below 2,000, has the NAO been made aware of that?

The early years sector is in a precarious financial position and is one of the lowest-paid sectors in our economy. I am sure every hon. Member in the Chamber will have visited nurseries in their constituencies and seen the passion, talent and commitment of practitioners. I hope we can agree that the low pay is a scandal. Margins in the sector are always tight, and we see a considerable churn of providers. However, I am extremely concerned by some of the recent research. For example, the Pre-school Learning Alliance survey of more than 1,600 early years practitioners in September found that eight in 10 said that it would have a somewhat or a significantly negative effect on them if their funding rate stayed the same next year. Half of providers have increased their fees because of the 30 hours offer. Four in 10—42%—have introduced or increased charges for additional goods and services, and, incredibly, four in 10 say that there is a chance that they will have to close their setting in the next academic year due to the 30 hours offer and/or underfunding.

That survey is not a one-off. The National Day Nurseries Association unearthed a yearly funding shortfall of £2,166 per three and four-year-old child. That has contributed to a 66% rise in nursery closures over the past 12 months—a loss of a staggering 5,000 places. A Department for Education-commissioned report conducted by Frontier Economics, released last month, found that 25% of providers had moved from making a profit to breaking even or making a loss.

Despite the weight of evidence clearly showing that there is an urgent need for a funding increase for early years policies, the Government remain defiant. Later today, “Save Our Nurseries” campaigners will be outside Parliament, and campaigns are springing up in Salford, Birmingham, Tower Hamlets, Burnley and elsewhere, but for too many there is nothing to be saved. Bright Beginnings in Stockport said that

“the reality is that we can’t provide Outstanding nursery care on the funding provided.”

The Ark Nursery in West Sussex is closing because of a decade of underfunding. Windymiller, in my own constituency, where I grew up, closed its doors a few months ago because of funding pressures. It seems that at least once a week, I hear of another outstanding nursery closing its doors for good.

What is to be done? Well, the Budget is coming up this month, and I wonder whether the Minister could enlighten us as to whether he or the Secretary of State have held conversations with the Chancellor about a funding increase for free childcare. In recent days, a petition calling for a review of how business rates are applied to nurseries has reached 10,000 signatures. Perhaps the Minister could let us know his thoughts on that, and whether he supports the decision in Wales to scrap business rates for nurseries.

Maintained nurseries remain concerned that there has been no commitment to extra funding, considering the extra costs that they incur. With budgets requiring sign-off two years in advance, can the Minister tell us when a decision will be made? As the Government occupy a larger role in the funding of nurseries, they must also face up to their responsibility to nurture the sector. If we continue on our current trajectory, we will see a growing recruitment crisis and an exodus of experienced and outstanding providers. Nobody wants that. I look forward to hearing what plans the Minister has to halt this growing problem.

--- Later in debate ---

[Nadhim Zahawi]

I have so many things to say. The hon. Lady made a thoughtful speech, and I will try to get through as many of the questions asked by her and other colleagues as possible. I hope she will forgive me for not giving way.

In this research, parents also reported wider benefits for their families: a fantastic 86% thought that their child was better prepared for school, and 79% felt that their family’s quality of life had improved. The recently published “Study of Early Education and Development” report evidenced the beneficial impacts of high-quality early education for all children aged two to four on both cognitive and socio-emotional development at the age of four.

The introduction of 30 hours has been a large- scale transformational programme, and change can be challenging for everyone. But we have seen tens of thousands of providers respond magnificently—I want to thank them for that—because of their ongoing commitment to helping families. The evaluation of 30 hours found that three quarters of providers were willing and able to deliver the extended hours, with no negative impacts on their provision or on sufficiency of childcare places. As we have heard from colleagues’ local experiences, the childcare market in England consists of a diverse range of provider types, allowing parents to have choice over their childcare provider. The supply of childcare in England is generally of high quality, with strong indications that existing supply is able to meet parental demand for Government-funded entitlements.

Nearly 80,000 private childcare providers were registered with Ofsted in March this year, and we know that nearly 10,000 school-based providers offer early years childcare. While there are, of course, sad examples of providers closing—as some hon. Members have shared—there is no evidence of widespread closures in the non-domestic childcare market. [Interruption.] Well, let me share the Ofsted data if hon. Members do not believe me. The Ofsted data published in June 2018 showed that the number of childcare places has remained stable since 2012. It is normal for providers to join and leave the Ofsted register, as it is a private market, and it can happen for a variety of reasons.

Most significantly, we have not heard via local authorities, from hon. Members or in the media of eligible parents being unable to find a 30-hours place or a place for any of the free entitlements.

[Tracy Brabin]

I am so grateful to the Minister for giving way. He says that there is no evidence of parents not being able to access the 30 hours. I have spoken to providers and nursery owners who say that they are not offering 30 hours at all.

[Nadhim Zahawi]

The hon. Lady makes an important point. It is up to providers whether they want to offer the 30 hours or not. That is a choice for them to make, but we have seen no evidence of parents being unable to find a place.

As important as the availability of a place is, I am also pleased, and in many ways delighted, that the quality of childcare providers remains high, with more than nine in 10 rated good or outstanding by Ofsted. In January 2018, over 1.2 million children under the age of five were receiving funded early education in settings rated good or outstanding by Ofsted.

We continue to support growth in the childcare sector. We have already invested £100 million in a capital fund to create extra high-quality childcare places in all provider types. We continue to work with councils to support the providers who deliver our free entitlements, through initiatives such as the £7.7 million delivery support fund and through our delivery contractor, Childcare Works.

I was not going to mention the NAO report or Frontier Economics, but I am pleased that the shadow Minister commended the thorough and wide-ranging review that the NAO report mentions—we will say a bit more about that later. Over the next year, Childcare Works will continue to work with local authorities to raise awareness and to support childcare providers to deliver the Government’s childcare entitlements, including the 30-hours offer.

The Government have introduced a range of business rate reforms and measures, which will be worth more than £10 billion by 2023—my hon. Friend the Member for Bolton West mentioned the issues to do with business rates—such as raising the rateable value threshold for 100% relief from £6,000 to £12,000, which means that about 655,000 small businesses pay no business rates at all. A package of support worth £435 million over five years is available to those that have had a large hike in business rates. We are also increasing the frequency of property revaluations from every five to every three years following the next revaluation, to ensure that bills more accurately reflect property values.

We have provided powers under the Localism Act 2011 to enable local authorities to offer business rate discounts as they see fit. In 2015, my predecessor and the local government Minister asked officials to write to all councils to encourage them to use those powers to support access to local high-quality childcare provision. So far, I am aware of only two councils that have chosen to do that. Members could talk to their local authorities about joining in to do that.

On the work on costs—I want to address the issue of costs—funding is inevitably and understandably high on our agenda during any discussion about free early education entitlements. My Department continues to pay close attention to the matter. I do not want colleagues to go away with the impression that this Minister thinks funding is not a challenge. We are, however, clear that getting the funding right is critical to the successful delivery of free entitlements.

[Tracy Brabin]

Will the Minister give way?

[Nadhim Zahawi]

I am coming on to something the hon. Lady raised, but I shall give way happily if I have time at the end.

This year, we shall be enhancing our annual survey of childcare and early years providers with more detailed research. Again, I commend my hon. Friend the Member for Bolton West on his research, and I am interested in getting deep into the evidence on provider finances and childcare fees for two to four-year-olds. We have also commissioned independent research that involved site visits to a representative sample of early years providers to provide us with robust, up-to-date evidence on the costs of delivering childcare, including operating costs such as business rates. That is part of our ongoing monitoring of 30-hours implementation, and we shall consider the next steps once we have the findings on costs.

I shall now turn to some of the comments made by colleagues. My hon. Friend the Member for Bolton West mentioned VAT. Under European law, registered childcare providers deliver an exempt service, which means that they do not charge VAT on their services. The exemption is obviously designed to ensure that tax does not fall on individuals using welfare services, such as nursery services. However, goods and services purchased by the providers are subject to VAT, which causes understandable frustrations in the sector, but the rules cannot be changed within the existing legal framework. There may be opportunities to make changes to the VAT system in the future, but our rights and obligations remain unchanged until negotiations on our departure from the European Union are complete.

On the point my hon. Friend and many colleagues made about nurseries going out of business, the Ofsted data in itself is interesting. It shows that the number of childcare places available has remained stable since 2012. I also remind hon. Members that childcare providers do not have to offer the free 30 hours—that is entirely up to them—although, since the roll-out of 30 hours of free childcare, we have seen a sizeable majority of providers increasing the number of free hours available to parents, with no evidence of an impact on their funding.[Official Report, 16 October 2018, Vol. 647, c. 8MC.]

My hon. Friend the Member for Rugby (Mark Pawsey) and other Members mentioned the issue of nurseries charging parents. The Government have been clear that the funding is intended to deliver free high-quality, flexible childcare. It is not intended to cover the costs of meals, consumables or additional services, so providers can charge parents for such things. However, parents must not be required to pay any fee as a condition of taking up a place. Our guidelines state that providers should ensure that their charges are clear to enable parents to make an informed choice.

A number of colleagues mentioned financial support for parents in connection with disadvantage. I remind hon. Members that, in addition to the investment that we are making, under universal credit working parents may claim back up to 85% of eligible childcare costs, compared with 70% of costs covered under the outgoing tax credits system.

The hon. Member for Bethnal Green and Bow (Rushanara Ali) raised another issue to do with disadvantage, pointing out that two-year-olds cannot access the disability access fund, the early years pupil premium or the SEN inclusion fund. In 2017, we increased the funding rates for all disadvantaged two-year-olds by 7%, and we pay a higher rate for them because we recognise the higher costs associated with two-year-olds. The two-year-old funding is, by its nature, already targeted to the disadvantaged in that age group.