Our approach
To measure the impact of manifesto policies we re-visited our assessment of sector delivery costs captured in April 2019, which forecast a sector deficit of £662 million. By April 2020, costs will rise again, fuelled by statutory pay increases and CPI inflation, amongst other drivers. We have allowed for pay growth of 3.6 per cent and inflation of 1.5 per cent in our updated estimates of delivery costs for PVI nurseries and pre-schools, comparing this with funding rates obtained direct from party sources. The analysis which follows is based on PVI nursery and pre-schools only.
The Conservative Party
There would be no change to early education and childcare entitlements under a new Conservative administration. No further funding has been announced for this age group, with new investment focusing on wraparound and holiday provision. With a 2019 Spending Review uplift in the region of £0.08 per hour from April 2020, the deficit reported in 2019 will rise significantly. Based on delivery costs for children aged two to four years only and assuming take-up of funded places is in line with 2019/2020 trends, providers would face an estimated funding deficit of £571 million in 2020/2021. The deficit rises to an estimated £824 million when cross-subsidies for younger age groups are factored.
The Labour Party
The Labour party has proposed significant expansion of early education and childcare entitlements of 30 hours a week, across 38 weeks of the year, for all 2 to 4 year olds. The good news is that Labour also proposes significant increases to funding rates, exceeding our estimate of costs for 2 year olds, but falling short of our estimates for 3 to 4 year olds. Taken together this results in a net deficit, at full rollout on April 2020 rates, of an estimated £80 million. Phased rollout and a commitment to annual funding increases could potentially reduce this gap. The Labour ‘free-entitlement’ offer therefore delivers more to parents, at less cost to the sector than the Conservative net position.
What is less clear, is how a proposed offer of an additional 60 hours per year at subsidised rates would work – no assessment of funding has been possible based on the information available. Future commitments to look at provision for one year olds are also yet to take shape.
The Liberal Democrats
If Labour is ambitious, then the Liberal Democrats have gone several steps further. The introduction of free places for children aged 9 to 23 months in working households would significantly change the early years landscape. Add to this the expansion of existing 2 to 4 year old offers to every child, for 35 hours a week across 48 weeks of the year, and the scale of change is vast. Based on the party's estimate of projected take-up, nurseries and pre-schools could be looking at delivery of around 1.8 billion hours of free childcare at full rollout, compared to around half a billion at present.
Again, the party has pledged large funding increases, committed to an annual review of rates and plans the expansion of offers on a phased basis. Assuming full delivery of the offer at pledged 2020/21 rates, nurseries and pre-schools would face an estimated £314 million deficit. If future rate reviews narrow the gap between 2020/21 funding and costs, this considerable shortfall could potentially reduce by full rollout.
Both Labour and Liberal Democrat manifestos substantially increase the volume of funded places in younger age groups and pledge significantly higher rates for children aged under 3 years. Taken together, this is likely to reduce the impact of age cross-subsidies. As the age profile of sector occupancy is likely to change significantly under these offers, forecasts accounting for age cross-subsidies cannot be produced at present.
The bigger picture
Whilst cost understandably takes centre stage there are other, albeit related, challenges to consider. At present PVI nurseries and pre-schools deliver around half a billion ‘free entitlement’ hours. If party estimates of take-up are accurate, the figure could rise to 1.1 billion hours under Labour and 1.8 billion in a Liberal Democrat administration. Given that 1 in every 4 providers had a hard to fill vacancy in summer 2018, is the sector in a position to respond to new demand on a large-scale? Whilst some of this capacity will undoubtedly involve a shift from fee to ‘free’ provision as seen in the 30-hour offer, this will be the case to a far lesser extent for younger ages.
There is also the much broader question rarely raised in the race to win votes: do these offers deliver the best return on investment in terms of promoting children’s development and closing disadvantage gaps? A critical factor, amongst others, will be the extent to which rapid expansion puts quality at risk.
Get involved - join us in #TheBigEYdebate January 29, 2020
We invite you to come and discuss these pressing issues in the #TheBigEYdebate on January 23, in London and at live-streamed events around the regions.
This is an important opportunity for the sector to come together, take stock of the outcome on 12 December, and consider how it can work together to address the challenges of the future – we hope you can join us. Find out more here.
- Download our free manifesto briefing here.