The average nursery is losing more than £32,000 a year by providing the universal funded childcare for three-and four-year-olds, according to the NDNA, due to the underfunding of childcare places.
This figure could be doubled for nurseries with children on the 30-hour offer, which is just not sustainable for any business, private or voluntary, the NDNA said.
More than 98 per cent of nurseries are losing money on providing funded hours, up from 95 per cent in September 2021.
Meanwhile, nurseries face an increase in 14 per cent in wage costs from next month, with rises to the national minimum wage and national living wage, according to the research.
However, many nurseries are putting their fees up by less than this rise, at an average of 8 per cent – or lower in areas of deprivation – in an effort to keep places affordable, and amid fears parents would not be able to afford the increase.
The NDNA said it was ‘shocked’ to find that 83 per cent of nurseries do not expect to make any surplus at all this year.
The survey found that 38 per cent of respondents will make a loss, and less than half – 45 per cent – expect to break even.
It also reveals that chronic underfunding is having an impact on the number of funded places settings can offer, with a rise in closures leaving more than 5,000 children without childcare.
Between April and December 2022, closures rose by 87 per cent compared with the same period last year.
Purnima Tanuku, chief executive of the 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.'
The National Day Nurseries Association’s costs survey ran from 13 January to 6 February, with responses from 477 nurseries across England.
It has led to parents either having to pay higher fees or nurseries having to close for good.
NDNA’s analysis of nursery closures shows an 87 per cent increase in the numbers of nurseries closing down between April and December 2022 compared with the same period in 2021.
These closed nurseries left 5,656 children having to find an alternative childcare place.
One Derbyshire nursery said that it was already making a loss of £1,800 a week on funded hours as opposed to fee-paying hours.
Another nursery owner, also in Derbyshire, said it expects to break even, but only because she has cut her own pay and staff hours.
'Our nursery has survived because staff have dropped hours and income to help us get by, I have reduced my earnings to just £750 per month for working around 60 hours per week as a manager of 14 members of staff in our setting to ensure our survival, which is no longer guaranteed,' the owner said.
A Berkshire nursery that expects to break even said, ‘I am struggling – if I put up prices then I am alienating my parents. I don't want just the super rich parents I want to support all parents, especially the hard working hard to reach parents. They should have a right to make a choice where they want to go regardless of costs.
'Everything is so expensive – I have put that I will break even, but I may make a loss, it all depends on the number of parents we take on. I used to love running a nursery , but other factors are taking the fun [out of] why I started this career in the first place.’
'More providers will struggle to survive'
Tanuku added, ‘Some parents just can’t pay more and those nurseries will struggle to keep going.
‘We were shocked to find that 83 per cent of nurseries do not expect to make any surplus at all and 38 per cent are operating at a loss – this increases to 45 per cent in the 20 per cent 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.’
Deprived areas
More than a quarter of closures took place (29 per cent) in the 20 per cent most deprived areas.
The NDNA highlighted that nurseries in areas of deprivation are the most financially vulnerable, as they tend to have more funded children and fewer parent-paid children, and they are also less able to increase their fees to parents.
One Essex nursery with funded children, which only expects to break even and will have to decide whether to stay open, said, ‘We are in an area of deprivation and fully-funded by Essex County Council. The only money we receive is the NEG [nursery education grant] funding – running a nursery based on these rates when everything is going up is making us question the sustainability of the venture. We are also a registered charity and apply for grants and lottery funding for improvement projects, however we will soon have to make a decision if we can go on or not.’
Children in areas of deprivation have the most to gain from high quality early education and care, the NDNA said, helping to close the attainment gap, but children in these areas are the ones most likely to lose their local provision.
Tanuku added, ‘Our figures show that nurseries in the most deprived wards of England are the most likely to close, with almost 30 per cent of closures taking place in the 20 per cent 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.’
Funding shortfalls
- 98 per cent of respondents now say that funding rates do not cover delivery costs – this is up from 95 per cent in September 2021.
- The estimated funding shortfall for three- and four-year-old places is £2.31 per hour, up from £1.87 in 2021.
- The proportion of Government to parent paid hours is now 51 per cent Government, versus 49 per cent parent paid. For nurseries in areas of deprivation, the ratio is 60 per cent to 40 per cent.
- Funding shortfall for the average child on universal funded childcare place (15 hours) is £1,316.70 per year.
- Funding shortfall for the average nursery setting for children on universal childcare places (15 hours) is £32,359 per year.
- Funding shortfalls for average children on 30 hours would be double the above figures.