The proposed Universal Credit is a major threat to the sustainability of nurseries, argues Anand Shukla, acting chief executive of Daycare Trust

Daycare Trust research has found that parents’ inability to pay for childcare is now the biggest sustainability issue for childcare providers.

Our survey of more than 400 members of the London Childcare Providers Network, which includes nurseries, childminders and out-of-school clubs, found that this was their top issue for the first time ever, above workforce issues and Ofsted inspections.

Nearly half (46 per cent) of providers said they had experienced lower demand for places and many described how fee arrears had increased.

These findings show how important it is that the childcare sector fully understands the changes that the Government is making to the support that parents can receive for childcare costs from 2013.

These reforms come on top of a change in April of this year which cut the amount of childcare support available through tax credits from a maximum of 80 per cent to 70 per cent. This reduced funding for childcare by £270m in 2011/12, rising to £385m per year by 2014/15.

For the 500,000 families receiving the childcare element of Working Tax Credit, it meant a cut of an average of £550 per year. It is unlikely that these low-income families will be able to replace the money from their own pockets, so it represents a direct cut to the industry’s turnover. Three different providers reported in our survey how single parents had removed their children from childcare as a result of the cut to tax credits in April.

The Government is currently reforming tax credits and creating the new Universal Credit. Ministers have accepted that childcare support is essential for making work pay, and have committed to maintaining the same budget under the new system.

Risks to providers

However, it is also proposing to extend support to those working fewer than 16 hours per week (something which Daycare Trust has welcomed), which means that the money will need to be spread across many more families. This poses huge risks to providers as the generosity of support will be reduced. Under one of the options the Government is considering, financial support could be limited to £80 per week for a parent with one child, and £120 per week for two or more children.

This will hurt work incentives, particularly for those families with high childcare costs, such as those with children under three, parents of disabled children, and those in London and the south east. It will mean that if parents need to spend more than these limits on childcare in order to work, then it will actually cost them money to go to work once tax and national insurance are taken into account.

The changes may also mean that the budget for childcare support is distributed in a very different way across the industry. As parents’ costs are typically lower when their children are in school, these proposals benefit these families rather than those with pre-school age children. So it could mean more of the money going to out-of-school providers rather than nurseries and childminders.

If parents find it isn’t worthwhile to work more than a few days per week, they might cut back and only use the free entitlement. Others might opt out of formal childcare altogether and rely on friends or relatives.

Overall, it will result in more parents receiving help, but the key point here is that parents will receive smaller amounts and we know that it is high occupancy and full-time places that help providers remain sustainable. We are also worried that reducing the limits so significantly will force parents to seek the cheapest options, which has serious implications for quality.

Daycare Trust is campaigning for more funding from the Treasury to ensure that the current generosity of support is maintained, as well as extending support to parents working fewer than 16 hours per week. This is the only way to ensure that work pays for parents, and will help to protect the sustainability of thousands of childcare providers.

This is an issue on which parents and providers should be united. Please write to your MP and ask them to lobby the Chancellor for more funding, so that we can continue to invest both in the organisations that provide childcare, and the millions of families that they serve.