Second inquiry session 'Financial sustainability of the PVI sector'

[FSFRebecca]

Last Monday Helen and I attended the second inquiry session for the Childcare and Early Education APPG at Westminster. The meeting was chaired by Ruth George MP (in the absence of Tulip Siddiq MP who is on maternity leave). We were pleased that the following MPs and members of the House of Lords attended:

• Ben Bradley MP (Con)
• Andrea Jenkyns MP (Con)
• Liz McInnes (Lab)
• Karin Smyth (Lab)
• Baroness Deech (CB)
• Baroness Howe of Idlicote (CB)
• Lord Maginnis of Drumglass (UUP)
• Baroness Prosser (Lab)

This inquiry session was to put questions to a panel of witnesses who have specific knowledge about the finances involved in the PVI sector. The panel were as follows:

• Nicky Morgan MP, Chair, Treasury Select Committee
• Gillian Paull, Senior Associate, Frontier Economics
• Cllr Gillian Ford, Deputy Chair, LGA Children and Young People Board

The Treasury Select Committee had previously found that the Government’s funding of the 30-hours policy is lower than the cost of delivery. In March 2018 it called the Government figure of £4.94 per hour “misleading”. The Committee has also suggested that the Government’s calculations on how much it costs to deliver childcare are out of date and inaccurate, stating that “setting the funding level with reference to wage and overheads data that is more than five years old is unsatisfactory”. Finally, regarding the increased charges for goods and services that providers have introduced, the Committee said these “consequences could be avoided were the Government to pay a higher hourly rate to providers and ensure that all the money provided to local authorities was passed on to childcare providers”.

Frontier Economics, in a Government report, ‘Evaluation of the first year of the national rollout of 30 hours free childcare’, published in September 2018 found that 39% of providers who took part in the evaluation reported that there had been a reduction in their profit or surplus due to the extended hours. 25% of providers either moved from making a profit to breaking even, or from breaking even or profit into making a loss as a result of offering the extended hours. The 30-hours offer was "not completely flexible or free for all parents” with 'substantial proportions' reporting that there were some restrictions on when they could use the hours (48%) or that they had to pay charges for additional items or activities (56%). Local authorities who took part in the evaluation argued that many providers "can only be financially viable if they adapt their business models to offer the extended hours, for example, through additional charges for extras and parent paid hours". It continued that that they "expected the pressure to develop these delivery models to become greater because the funding rate is planned to remain unchanged, while costs will increase", and that they believed "that the word 'free' should be dropped from the policy”. 

In the session MPs heard how the introduction of 30 hours had decreased flexibility for parents, with providers restricting their hours to particular times of the day. They were told that there was evidence of increased ratios and lower levels of qualifications amongst staff. MPs wondered whether the 30 hours initiative was about getting parents back to work (thereby a Dept. Work and Pensions scheme) or was it about providing care and education for children (thereby a DfE scheme)? It was commented by Cllr Gillian Ford that one concern of Local Authorities was that their funding did not allow them to support quality improvement in settings and so quality would decline over time. Similarly, despite research (e.g. EPPSE) finding that it was the work of high-quality early years  staff that led to the best outcomes for children the funding rates settings received for the 30 hours provision meant that they could not afford to pay for highly qualified staff. The point was made that it needed not to be just childcare and education that was provided but high quality childcare and education.

At the end of the session the witnesses were asked; "If the Department for Education were here today, what one policy recommendation would you make to them?" It was clear that there was agreement - in the comprehensive spending review the DfE must make the case for sufficiency of funding to cover the ongoing costs faced by providers including rises to National Minimum Wage, Pensions and Business Rates. 

 

[FSFRebecca]

Since the session Frontier Economics has released a research report "Early years providers cost study 2018" which analyses detailed cost and income data collected from 120 early years providers during March to July 2018. You can read the report here. There have been various responses to the report, some which we have collected for you below:

• Government-funded research shows rising costs for nurseries and childminders (Nursery World)
• Government research reveals rising cost of providing childcare (Early Years Alliance (formally PLA))
• Research into Childcare Costs Needs to be More Robust (NDNA)