Julian Sturdy: We can’t afford to ignore the rocketing costs of child care

AS all parents, grandparents, foster carers and indeed anyone involved with young children know, child care funding has been a contentious issue for some years.

Indeed, over the past few years, the price of child care has risen by more than twice the rate of inflation, despite average earnings falling back to 2003 levels.

As ever, a quick glance at the relevant evidence illustrates the sheer scale of the problems faced by our nurseries, not only in my patch in York, but throughout the country.

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More than 600,000 children use the 15,000 nurseries in the UK, 80 per cent of which are in the private, voluntary and independent sector, employing more than 200,000 people. However, occupancy in nurseries has fallen to 71 per cent as parents continue to struggle to pay their child care costs. That, in turn, leaves nurseries struggling to survive as local businesses.

One of the main reasons for the continuing rise in child care costs is nursery providers having to cross-subsidise the Government’s free entitlement funding.

They do so by increasing the fees they charge to families outside the free hours and to those not eligible for funding. The Government is the biggest procurer of nursery places, but it is, alas, among the worst culprits when it comes to paying for the places they procure.

The National Day Nurseries Association is a charity that represents children’s day nurseries throughout the UK, and recently announced that 84 per cent of nurseries claim that the funding they receive does not cover their operational costs. That is worrying. In fact, the average shortfall for free entitlement hours is around £547 per child per year.

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It is important to highlight the fact 
that local nurseries are also local businesses and, like every other business, they need sufficient cash flow at all times to keep going. It is already apparent that the status quo represents a serious problem.

Much of the debate about child care provision focuses on cost, which has had an increasingly negative impact on parents, with many believing that child care is simply too expensive, ruling out the option of returning to work or building a career.

Since my election in 2010, I have had the privilege of visiting a number of local nurseries and it is absolutely clear to me that their tremendous work is increasingly under threat.

The shortfall in funding is due, first, to the free entitlement funding provided by the Government. Free entitlement consists of 15 hours a week for 38 weeks of the year and is funded through the dedicated schools grant, with an estimated total spend of £1.9m a year.

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However, there is great disparity across the country in how much is spent on child care by individual local authorities, and therein lies a big part of the problem. The National Audit Office found that free entitlement varied from £2.78 to £5.18 an hour, with the national average placed at £3.95 by each local authority. My constituency receives only £3.38 an hour from the City of York Council. I have had many discussions with the council about that figure, but sadly, to no avail.

With regards to the extension of free entitlement to disadvantaged two-year-olds, the Department for Education announced an average funding rate of £5.09 an hour to try and counteract the disparity, but that has unfortunately only led local authorities that were funding more to immediately reduce their rates in an apparent race to the bottom.

The sad truth of the matter is that many child care providers receive low levels of funding for every child under the Government’s free entitlement scheme, which results in nurseries running at a loss. Therefore, they have to increase the price of child care outside the free entitlement hours and of child care for those to whom the free entitlement is not applicable to make up for the shortfall. They cannot charge at the moment for any top-up on those 15 free hours to bring it back to break-even levels.

Considering that staff costs, on average, are at least 70 per cent of the running costs of nurseries, there is real concern that any savings that could be made through the staff-to-child ratio will go towards increasing staff pay and training. To my mind, that is completely understandable and the right thing to do. Nurseries must invest in their staff; by doing so, they are investing in their businesses, because the nursery staff are their business. However, that does not solve the problem of child care costs. Currently, only one in three nurseries break even, which is a serious problem that is likely to get worse.

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However, laying the blame for such a situation at the door of the coalition Government would be short-sighted. In the past 12 years, the value of free entitlement per hour has increased by approximately 33 per cent, while at the same time, minimum wages have increased by at least double that.

With an industry that has such high staff costs, that lack of funding has been keenly felt, so it is my hope that the Government will review current funding sooner rather than later. In an ideal world, that would enable nurseries to stop increasing the price of child care for those outside the free 15 hours and also to children not eligible for the entitlement.

I appreciate, however, that the Government cannot afford to tackle every issue and reduce the vast deficit simultaneously. I understand the financial situation, the struggles of the Government, and the difficult decisions that they must make. Nevertheless, I strongly believe that ignoring the problem will only result in the price of child care increasing further.