The new Family and Childcare Trust report , out today, is receiving wide coverage. Dramatic headlines proclaim that “The cost of childcare so high that it does not pay UK families to work” (Guardian headline). The price of a part-time nursery place for a child under two has gone up, the report states, by almost a third in the last five years with parents now being forced to pay more than £6,000 a year.
The cost of childcare is undoubtedly an area that political parties are likely to squabble over as the general election approaches. Indeed Nick Clegg has already come out of the traps promising more for “hard working families”.
At present, parents of three and four-year-olds, and some two-year-olds, are offered 15 free hours’ childcare per week in termtime. Nick has pledged today to extend this to give away 15 hours a week “free” for all two-year-olds and for those children of working parents aged between nine months and two years “saving families thousands of pounds”. He also said Liberal Democrats aimed to increase free provision to 20 hours in the longer term.
Good for the kids, great for the parents, fantastic for society. Maybe….
But let us consider for a moment why childcare is so expensive and indeed why costs have risen so dramatically and look set to rise further.
Let’s start with the basics. Childcare is labour intensive. The law says (last time I looked) that one nursery worker can look after no more than three children under two, where children are over two the ratio is 1:4 and for over-threes it is 1:8. National Insurance, pensions and salaries for workers account for 77% of a nursery’s costs – that’s a healthy slug of the cost. Added to that, nurseries are also now expected to have more qualified staff, adding to the costs. And lest we forget, nurseries’ staff costs are set to increase in 2015 with pension auto-enrolment responsibilities coming in for many small and medium size businesses.
Government giveth with one hand and taketh away with another.
And if nurseries are forced to pay all staff the Living Wage, as many Councils appear to be considering, this would push up costs further (by an estimated 13%).
Then there are the additional costs facing a typical nursery. Insurance is very expensive (and rising every year it seems). Add in rent, heating and lighting, cleaning, food, maintenance etc most of which have risen dramatically in one way or another over the past few years. Then consider business rates and VAT (up from 17.5% to 20% in 2011) pushing up the cost of childcare. The average annual business rate paid by nurseries is almost £16,000. Most nurseries are not able to benefit from small business rate relief, as their rateable value at an average £30,000 is well above the threshold. And let us not forget that compliance with the never-ending list of Government rules and regulations has also added to costs (providers of childcare are subject to Ofsted inspection in the same way as schools for older children).
This can explain part of the rising cost in childcare fees, but by no means all of it. The biggest cause of the rising costs of childcare is the “free” Government subsidy.
Nurseries have to provide 15 hours of free childcare for children over the age of three. Although the Government (i.e. the taxpayer) pays for this, according to the National Day Nurseries Association, (NDNA) they only get paid £3.80 an hour per child from the Government to provide the care. This payment does not cover the cost of care, it argues, leaving a shortfall per child per year. Underfunding has been reported by NDNA in six successive nursery surveys over four years.
So how do nurseries make up the shortfall? By effectively increasing the costs to parents who pay for care above and beyond the 15 hours and those with children under 2 years old.
The more hours nurseries are expected to provide at a loss to their business, the more they will pass the cost on to parents paying for additional hours of childcare beyond the free 15 hours, or for children below the entitlement age.
Don’t take my word for it. The NDNA says
“The money that childcare providers currently receive to deliver free hours falls short by an average of £800 per child per year for each funded three to four-year-old place and £700 for each two-year-old place.
“Nurseries are being forced to increase their fees to parents who pay for additional hours, or for younger children not eligible for funded places, to make up the funding shortfall.
“For most nurseries, the average sum received of £3.80 per hour does not cover the cost of high-quality childcare, let alone make a surplus.”
“This is the biggest single reason that nursery fees are rising for some paying parents who end up subsidising the free places.”
The more governments tinker with the market, and meddle in matters best left to parents the more problems they cause.
So Nick please note, offering more “free” places is not the solution, nor is the planned extension to 20 hours. It’s most likely to exacerbate the problem, driving more nurseries out of business; limiting choices to parents and driving up costs still further for parents seeking more than the “free” entitlement. It may get you a few extra votes this May, but, voters wont thank you in the long term.
“Free” is not “free” it always costs somebody something – more when the Government get’s its sticky fingers involved.
Of course some will say that the simple solution is to pay nurseries more. That might reduce childcare costs in the wider sense – removing the subsidy effect.
But what will get cut to fund this act of largess to those who choose to have children? And is it fair? Nick appears to be penalising parents who elect for one parent to stay at home to nurture their children in pre-school years. Why are they excluded from this election gift to parents? Indeed why make it free for all? Much like the winter fuel allowance, why provide this those who don’t need it.
This is the worst kind of lib demmery. No wonder the party is the mire if this is typical of it’s offering.Tags: childcare costs, Family and Childcare Trust, National Day Nurseries Association, NDNA, Nick Clegg