Chancellor’s pledges not enough to fix UK’s childcare system, warn providers

With just weeks to go before the UK government rolls out the first stage of its flagship childcare expansion package, Catrin Blackwell has been told she will not be able to take advantage of the free hours it offers.

The nursery used by the full-time nurse for her two-year-old twin boys has said it is unable to offer the 15 free hours promised to her by the chancellor last year because it is unable to cover its costs.

“A promise was made and it hasn’t been fulfilled”, Blackwell said. “It’s hard working when you have young children and in April we thought things would be just that little bit easier.”

According to the government’s pledge, starting next month the 30 hours of free childcare per week currently available for three- and four-year-olds will be gradually widened to all children aged over nine months who have two working parents earning at least the equivalent of a 16 hour minimum wage job.

From April, the national average three- and four-year-olds funding rate will increase from £5.62 to £5.88. Average funding rates for two-year-olds will be £8.28 per hour and for under twos £11.22 per hour.

However, the expansion announced by chancellor Jeremy Hunt in last year’s spring Budget was condemned by the sector, which warned it lacked the resources needed to deliver the measures due to a crippling mix of rising costs, shortages of qualified staff and years of underfunding.

The National Day Nurseries Association has said higher national living and minimum wages due to come into effect in April will increase costs for providers by at least 10 per cent. 

Providers point out that while funding for two-year-olds and under is more generous than the private market’s current average rate of £6 an hour, the rate for three- and four-year-olds will be offset by inflation and the increase in the statutory minimum wage.

Average fees for this age bracket in 2023 were £6.77, according to government figures. Hunt’s proposed rate of £5.88 will represent a 17 per cent shortfall, say providers.

The Institute for Fiscal Studies think-tank pointed out that even with the increased funding, “core resources per hour for three- and four-year-olds in 2024-25 will be 11 per cent below their level in 2012-13 once providers’ costs are taken into account”.

The sector is calling on Hunt to use Wednesday’s Budget to increase the hourly rate for three- and four-year-olds to help make up the shortfall.

Hunt admitted to the BBC on Sunday that he was unable to provide an “absolute guarantee” that demand for places under his expanded provision would be met by local authorities in April.

For Blackwell the delays mean that she will have to continue paying £1,200 a month for three days a week of childcare — more than double her monthly mortgage payments. “It sounds silly but it does hurt because it’s a lot of money we thought we might be able to save,” she said. 

The government’s plans, which will have been fully implemented by 2025, were billed as a way to boost the economy and “transform” women’s lives by allowing more parents to return to work earlier after having a child. Hunt said the package would be worth £6,500 a year to parents with two children using 35 hours of childcare a week.

Business groups see the pledge as a key plank of the government’s growth agenda. Louise Hellem, chief economist at business lobby group the CBI, which campaigned for the policy, said it was keen “to hold their feet to the fire that the rollout is going smoothly and there are enough childcare workers to match demand”.

But some researchers question whether the design of the £4.9bn policy will achieve its aims.

There has been a debate over whether pre-school provision should be geared towards the needs of parents’ work or children’s education, and the government has “clearly said now that the early years system is going to be about childcare and labour supply”, noted Christine Farquharson, associate director at the IFS.  

But spending watchdog the Office for Budget Responsibility estimates the current policy will bring just 60,000 people into work for an average of about 16 hours a week. Mothers of young children already in a job are expected to work just 40 minutes more a week on average as a result of the subsidy. 

The IFS estimates that on this basis, 85 pence in every pound spent on the new free hours will go to parents already in work who were previously paying for childcare themselves. 

For some families, with a parent earning close to a £100,000 threshold, the policy creates a deterrent to career progression. A parent of two in London could end up worse off even with a pay rise of £45,000 if they crossed this threshold and became ineligible for free hours. 

“The government is spending a lot of money to subsidise a small number of people into part time jobs with low lifetime pay and progression — is that really what we want a system to deliver?” Farquharson said. She added that helping non-working parents access care would do more to narrow Britain’s educational divides than long hours in care for children already attending. 

Despite the government’s higher funding rates for the youngest children, childcare providers — who are already finding it difficult to deliver current, less generously funded free hours for older children — are sceptical that state funding will keep pace with inflation over time. 

There are also widespread fears that a sector with chronically low pay and high staff turnover will struggle to hire or keep the workers needed to create new places, despite a government pilot scheme to offer £1,000 sign-on bonuses in the areas under the most pressure. 

Vacancies in childcare have rocketed, with data from the Recruitment & Employment Confederation showing that job ads for practitioner roles in the UK doubled between the start of 2022 and 2024.

A “chaotic” rollout of the new entitlement could be “really dangerous” to the stability of the early years system, Farquharson noted, as the state would soon be funding 80 per cent of pre-school care in England.

The Department for Education said: “We are confident in the strength of our childcare market to deliver the largest ever expansion in childcare in England’s history, and we are already seeing providers looking to expand their placements across the country.

“We will continue to support providers to deliver each stage of the rollout through increases to the rates we pay, our national recruitment campaign and establishing more qualification routes into the sector.”

But Randa William, principal of the Children’s House Montessori in Kent, has opted out of Hunt’s new scheme because she still hasn’t been told what she will be paid — despite the rollout starting next month — and says the uncertainty would put too much pressure on her business.

“Our parents were told by the government they would have access to these ‘free’ hours,” said William. “But I made a loss last year and had to consider closing down entirely, so I’ve sadly had to tell my parents I just cannot offer what they have been promised.” 

Joeli Brearley, founder of campaign group Pregnant Then Screwed, said: “Unless the funding to providers increases, they will have no choice but to continue charging high fees to make up the shortfall.”

Via