Neil Leitch: We can’t expect great childcare on the cheap

The long-term benefits of high-quality early years care and education are, by now, well-known. Research shows that children who attend pre-schools and nurseries are more likely to achieve high GCSE grades and earn more later in life.

And then of course, there’s the economic argument: Affordable, accessible childcare can help support parents – and, normally the focus is mainly on mothers – return to work, thereby giving the economy a boost.

So far, so good.

To help achieve both these aims, all three and four-year-olds are eligible for 15 hours of free childcare a week for 38 weeks of the year under the Government’s free childcare scheme. Since September, the same has applied to 40 per cent of two-year-olds. Parents then have the choice to pay for any additional hours of childcare they need.

This all sounds simple enough – so where is it all going wrong? According to research, childcare costs in UK are among the highest in Europe, with families spending on average over a quarter of their monthly income on fees.

The first logical assumption might be to assume that childcare providers – nurseries, pre-schools, childminders – are simply overcharging.

But government statistics show that half of providers either break even or make a loss, while recent statistics published by market analysts Laing & Buisson revealed that most childcare providers have raised their fees by less than the rate of inflation over recent years. And, of course, it’s well known that those that work in the childcare sector tend to be poorly paid.

So what exactly is making childcare so expensive? In the past, the Government has suggested a range of different possible reasons. There’s too much red tape, childcare providers are over-inspected and child-staff ratios are too rigid.

Yet it has consistently failed to explore what one of my colleagues has previously described as “the bleeding obvious” – the fact that the free childcare scheme is underfunded.

Essentially, the scheme works like this: central government gives a certain level of funding to local councils, who divvy it up and pass it on to childcare providers in their area. This funding should, in theory, cover the costs of all places offered under the free childcare scheme. In reality, however, it comes nowhere near.

We recently commissioned an in-depth independent study into how much it costs childcare providers to deliver free places, and how much funding they receive. The results proved what we in the childcare sector have been saying for some time now: The scheme is significantly underfunded. In fact, government funding only covers around 80 per cent of the cost, leaving childcare providers to make up the shortfall out of their own pockets.

For example, one particular local council in Yorkshire was, four years ago, giving childcare providers £3.54 per child per hour to cover the costs of free places. Today, it’s giving them £3.54. That’s despite rising business costs: rents, utilities, wages, pension payments. In fact, taking inflation into account, local providers are actually only receiving £3.03 an hour in real terms. In another local authority area, the current hourly funding of £4.68 is actually set to decrease to £4.62 next year. This is not unique to Yorkshire.

As a result, many childcare providers are now forced to rely on fundraising, volunteers and staff working additional unpaid hours just to stay afloat. This is clearly not sustainable – and the cracks are already beginning to show. In some areas, we’re now seeing providers limiting the number of places they offer under the free childcare scheme – or, in some cases, not offering any at all – because of the inadequate funding. In some cases, they are facing a choice between going out of business, or raising their fees and it is this problem that is leading to high childcare costs.

We have the potential to build a great childcare system in this country, but the government cannot have its cake and eat it.

The countries that are universally recognised as having the best childcare systems in the world – Sweden and Norway – invest double what we do into childcare as a proportion of GDP. The harsh reality is that we cannot have the best quality childcare in the world and keep costs down when we’re only investing half of what’s needed.

That’s why we are calling on the Government to face up to this problem. To continue doing nothing is a grave disservice not only to the thousands of providers and practitioners that do this incredibly important work but also the families that they support.

• Neil Leitch is chief executive of the Pre-school Learning Alliance, a registered educational charity which also provides high-quality affordable childcare and education to support children and families in areas of deprivation throughout the country.