Of the 122 respondents that took part in the National Day Nurseries Association’s (NDNA) survey for Wales, just 34 per cent said they expected to make a profit this year , while 65 per cent said they expected to only break even or make a loss.
The survey also found that hourly funding rates for three- and four-year-olds (the Foundation Phase) are currently the lowest in Great Britain at £3.15 per hour, compared with £3.94 in England. Nurseries are losing an average of £958 per child, per year.
The Welsh Government has pledged to offer working parents of three- and four-year-olds 30 hours free childcare over 48 weeks of the year from 2020, in comparison to 30 hours over 38 weeks in England.
Last month the Welsh government announced that Caerphilly would also be joining a pilot of the 30 hours, alongside Gwynedd and Anglesey (working jointly), Flintshire, Swansea, Blaenau Gwent, and Rhonnda Cynon Taf, the local authorities that will be trialling the scheme from September.
Almost half of nurseries (45 per cent) who were surveyed said they were uncertain or unlikely to offer the 30 hours because they were worried that Government funding would not cover their costs.
As a result, NDNA warned that thousands of families in Wales could struggle to find a nursery offering the 30 funded hours unless the Government provides better investment.
The NDNA says the findings suggest that Wales’ childcare sector is the most fragile in Great Britain, at a time when the Welsh Government is planning the ‘most ambitious’ childcare reforms of all three nations.
Three- and four-year-old places
Fewer than half of respondents, 42 per cent, are delivering, the Foundation Phase funded three- and four-year-old places, down from 47 per cent the previous year.
Of those not delivering the places, 27 per cent chose to opt out and 20 per cent were unsuccessful in their application.
The hourly rate from the local authority does not cover costs for 86 per cent of respondents.
A majority of nurseries offering the places are charging parents for extras including for food and drinks (24 per cent) and trips out (21 per cent)
Other findings
- 77 per-cent of nurseries plan to increase fees this year, by an average of 4.3 per cent, to try to offset other rising costs;
- The national living wage and rising business rates is putting additional pressure on nurseries, with 23 per cent reporting a rise in business rates;
- Losing staff to schools where they are better paid is a problem for more than half (54 per cent) of nurseries;
- Average occupancy has risen marginally on last year, but is still lower than England and Scotland;
- Fewer nurseries are working in partnership with schools than in 2016.
Two-year-old places
Just 21 per cent of nurseries are delivering the free two-year-old places under the Flying Start scheme. This is down from 32 per cent in 2016.
Of the nurseries not delivering the places, 25 per cent chose not to, while 9 per cent said they applied, but were not selected. In Wales, local authorities commission childcare settings to deliver free childcare places.
According to NDNA, many nurseries report that they are unable to deliver funded places as they are not in a Flying Start area. The average number of Flying Start places being delivered is ten.
The survey found that the hourly rate from the local authority does not cover costs for 57 per cent of nurseries, up from 38 per cent in 2016. The average hourly rate received is £4.60, down from £5.09 last year, with an average reported loss of £1.16.
In response to the survey's findings, the NDNA has made a number of recommendations to the Welsh Government, including protecting parents’ rights to choice by ensuring early education and childcare funding follows the child rather than restricting places in high-quality private and voluntary nurseries.
It says that in the longer term, NDNA’s Childcare Passport proposal would bring together Tax-Free Childcare, funded early years entitlement and tax credits/universal credit in one place.
Other recommendations include making funding sufficient to enable the sector to recruit and retain a high-quality workforce and pay their staff at least the Living Wage Foundation rate of £8.45 per hour. In addition, all childcare provision should be given 100 per cent relief on business rates and make VAT on childcare zero-rated.
Purnima Tanuku, chief executive of the National Day Nurseries Association, said, ‘Nurseries really want to be able to offer families the help with funded childcare that the Government is promising them.
‘But they cannot do this if accepting children for 30 "free" hours causes them to make a loss that could put them out of business.
‘Fewer than half of nurseries we asked were currently making a profit or surplus, with average losses on each three- and four-year-old funded place of £958 per year. More "free" childcare could make this situation worse if the funding isn’t sufficient.
‘Average occupancy in private nurseries in Wales is still very low at 68 per cent which is not high enough for the sector to thrive. Unless this situation is reversed, there’s a real danger there won’t be a private nursery sector in Wales, ready to offer the high-quality flexible childcare that parents need.’
A spokesman for the Welsh Labour Government said, 'When implemented, Welsh Labour’s childcare offer will be the best in the UK for working parents.
'Unlike the Tory Government in England, which has jumped into hasty and widely criticised implementation of its childcare scheme, we are proceeding on the basis of careful consultation and properly worked out pilots ensuring that our scheme works effectively for parents from day one.
'Private provision will play a central role in delivering our offer. Childcare providers in Wales are entitled to an enhanced level of support through our £100m Small Business Rates Relief Scheme. We have also announced an extra £20m of support for small businesses in 2017-18 through two bespoke schemes including a transitional support scheme. All of these schemes are fully funded by the Welsh Labour Government.'