Childcare crisis: 98.4% of nurseries losing £1000s due to funding shortfall

The government’s underfunding of childcare places in England has led to an 87% increase in nursery closures, with the average setting losing more than £32,000 a year just for their 15-hour funded places for three and four-year-olds.

This figure can be doubled for nurseries with children on the 30-hour offer, which National Day Nurseries Association (NDNA) says is just not sustainable for any business, private or voluntary.

It has led to parents either having to pay higher fees or nurseries having to close for good. Less than 2% of nurseries say their funding rate covers their delivery costs.

The underfunding is having a knock-on effect on places. NDNA’s analysis of nursery closures showed a 87% increase in the numbers of nurseries closing down between April and December 2022 compared with the same period in 2021.

Purnima Tanuku OBE, Chief Executive of NDNA, said: “What an appalling situation we find ourselves in. Due to chronic underinvestment in our youngest children, many parents are unable to afford sending their under threes to nursery and when their child is eligible for a funded place, they may find no places available locally.

“The Government keep telling us they are putting in record investment into early years education and care. But it is nowhere near enough. Nurseries along with other businesses have endured soaring costs including energy and food prices over the last year.

“From April the average nursery’s wage bill will shoot up by 14% - and yet they are only increasing their fees to parents by around 8% or lower in areas of deprivation in an effort to keep places affordable. Some parents just can’t pay more and those nurseries will struggle to keep going.

“We were shocked to find that 83% of nurseries do not expect to make any surplus at all and 38% are operating at a loss – this increases to 45% in the 20% most deprived areas.

“Childcare businesses need to make a surplus to be able to reinvest in resources , staff training and pay wages they deserve. We will see more childcare providers struggling to survive once all the cost increases come on board in April. The Government must acknowledge the full extent of this crisis and begin to meaningfully support the early years sector before it’s too late.”

All evidence points towards investment in early years education saving money in the long term. More children are presenting at nursery with difficulties with their communication and social skills, which need to be addressed as early as possible.

Childcare places also enable more parents to work and contribute towards the economy.

Purnima added: “Our figures show that nurseries in the most deprived wards of England are the most likely to close, with almost 30% of closures taking place in the 20% most deprived areas.

“This is because nurseries in these postcodes tend to have a higher proportion of Government-funded children so they are more impacted by the crippling shortfall in funding which is now an average of £2.31 per hour per child.

“And yet it is children in these wards who have the most to gain from high quality early education and care. Nursery places can be a lifeline, reducing the ever-widening attainment gap and lifting them out of poverty. Support early on saves money on additional support later. It makes economic and moral sense.”

Summary of NDNA survey findings:

Staffing costs:

Average increase in staffing costs for nurseries: 14%

Parent fees:

Average increase in parent fees: 8.5%
In areas of deprivation (bottom 2 deciles according to IMD): 7.8%

Business outlook:

83% of nurseries expect to make a loss or only break even
38% of nurseries say they expect to operate at a loss
45% only expect to break even
17% expect to be able to generate a surplus

In areas of deprivation:

87% of nurseries expect to make a loss or only break even
45% of nurseries say they expect to operate at a loss
42% only expect to break even
13% expect to be able to generate a surplus

Funding shortfalls:

98.4% of respondents now say that funding rates do not cover delivery costs – this is up from 95% in September 2021
The estimated funding shortfall for 3 & 4 year-old places is £2.31 per hour
This is up from £1.87 in 2021
The proportion of Government to parent paid hours is now 51% Government 49% parent paid. For nurseries in areas of deprivation, the ratio is 60% to 40%
Funding shortfall for the average child on universal funded childcare place (15 hours) is £1316.70 per year
Funding shortfall for the average nursery setting for children on universal childcare place (15 hours) is £32,359 per year
Funding shortfalls for average children on extended offer (30 hours) would be double the above figures

Closures data:

Closures from April 2022 to end December 2022 increased by 87% compared with the same period the previous year
These closed nurseries cared for around 5656 children who were left having to find an alternative place
29% of these closures took place in the 20% most deprived areas (bottom 2 deciles on IMD)
Nurseries in areas of deprivation are most financially vulnerable as they tend to have more funded children and fewer parent-paid children; they are also less able to increase their fees to parents
Children in areas of deprivation have the most to gain from high quality early education and care; it gives them the best start in life and helps to reduce the ever-increasing attainment gap – sadly children in these areas are the ones most likely to lose their local provision

NDNA’s costs survey ran from 13 January to 6 February 2023, with responses from 477 nurseries across England. NDNA ran separate surveys for nurseries in Wales and Scotland which will be published over the next few weeks.