Childcare providers will struggle with rise to national wage rates

In its 2018 Report published today, the Low Pay Commission said it had not found clear evidence of any negative effects on employment from the increased national living wage (NLW).

As a result, the Government has announced it will follow the commission’s rate recommendations from April 2019, with the NLW set to rise to £8.21 from £7.83.

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While the Low Pay Commission found that employers had adapted to NLW increases by accepting lower profits, increasing prices, restructuring workforces and narrowing the gaps between pay bands, early years experts warned such changes would pose a much more significant challenge to the sector.

For example, early years settings are tied by legal requirements on staff to child ratios, with staff costs accounting for three-quarters of providers’ outgoings.

In addition, they face ongoing issues with stagnant funding levels to provide childcare for three- and four-year-olds. Funding rates for 2019/20, which have just been published, show that nearly all local authorities will receive no increases to their early years funding.

'Devastating impact'

Neil Leitch, chief executive of the Pre-school Learning Alliance, said, ‘While the Low Pay Commission report found that, in some sectors, employers have been able to find ways to adjust to the rising National Living Wage without too much difficulty, the same is simply not the case in the childcare sector.

‘No one doubts that early years practitioners deserve salaries that reflect the quality and importance of their work – but inadequate funding rates mean that increases in the national living wage are often a cause of concern rather than celebration in the sector.

‘As highlighted in our response to the Low Pay Commission consultation, staff costs account for around three-quarters of providers' overall outgoings - as a result, increasing statutory wages at a time when funding is frozen at a level set several years ago is putting many in an impossible position.

‘With only two local authorities across the whole of England seeing any increase in early years funding rates next April, the implementation of the next increase in the national living and minimum wages is likely to have a devastating impact on some childcare providers.

‘The Government simply must take action and ensure that funding covers the true cost of providing quality childcare. Anything less, and we are likely to see a full blown childcare crisis in the country before too long.’

Chief executive of National Day Nurseries Association (NDNA) Purnima Tanuku added that without new funding to meet these costs, the report would ‘set alarm bells ringing’ for many nurseries.

‘As well as ensuring all their staff are paid the statutory increase, there is a knock-on effect to those above that rate as well. As providers struggle to cover their costs, the Low Pay Commission’s report shows that pay is increasingly settling at, or around, the living wage. This makes it harder to reward more qualified or experienced staff. 

‘In other parts of the economy employers have adjusted their business models to accommodate the rising wages, including increasing prices and restructuring the workforce. However, with legal requirements on staff ratios and funded childcare policies in place, nurseries do not have the same flexibility as shops, salons and bars.

‘We have just had the announcement of the 2019/20 funding rates showing that all but two councils will receive the same or less money per child for childcare in their area. These rates from Government have failed to keep pace with swelling wage bills with the current rates based on wage costings from 2012/13. Since then, the National Living Wage has been introduced and increased by over £2 an hour.

‘This change will add thousands to the average nursery’s running costs but time and again Government ministers have chosen not to account for this. If they are promising funding for childcare, they must allow for higher staffing costs the Government is mandating and pay a meaningful rate to providers.’

The LPC’s rate recommendations accepted by the Government