The 30 hours ‘free’ childcare scheme, introduced by the government in September 2017, is not working.
There is not enough money made available to providers. It is not fairly distributed. Providers are having to get parents to pay for extras when they were promised free childcare or worse, subsidise the scheme with their own revenue.
But what exactly is wrong with the scheme? And how could it be fixed? We spoke with Neil Leitch, CEO of Pre-School Learning Alliance, and Jo Morris Golds, Spokeswoman from campaigning group Champagne Nurseries on Lemonade Funding (CNLF) to find out what’s going wrong with the government scheme.
Put simply, the 30 hours ‘free’ childcare scheme is underfunded. The pot is just not big enough.
As a result, the funding rates handed down from the various local authorities do not cover the cost of care and are often far below what a setting would normally charge. How can a setting survive when a place that usually earns them £5 an hour is funded at £4?
As you’ll see in the evidence section below, not only are many providers being forced to close, but many more still are having to swallow costs themselves and drastically reduce their wages or profits just to survive.
The biggest problem is that things are only going to get worse. “Rule number one in business is that when your costs go up, so must your fees,” says Jo, “and our costs are going up but our fees are frozen, or even going down. It doesn’t take a mathematician to work out that that’s not sustainable.”
With the increase in National Living Wage and pension contributions, the lack of proper funding is devastating in a sector where up to 73% of a provider’s costs come from the people who work there.
What’s more, there is a complete lack of transparency with parents about what the government exactly means by ‘free’. The small print contains restrictions on when it can be accessed and what it can be used on, yet parents rock up expecting to get 30 hours a week, free at the point of access.
“Regardless of where the data comes from, every report and survey shows that it is not a free deal for parents or nurseries,” says Neil. “There is a complete lack of transparency.”
But it works for some…?
While it is true that some providers are managing to make it work, very few are coming out of the scheme better off. Perhaps they’re seeing a rise in occupancy, or they may get a favourable rate compared to others.
Even if they’re subsisting by charging top-ups, exorbitant lunch fees, asking for contributions, or limiting the hours available, it’s increasing their workload and limiting parents’ true access.
Many more are unable to make these schemes work. Some of the worst-affected include:
- Preschools – Parents just pitch up expecting it to be completely free, and preschools don’t have existing relationships which they can use to explain the intricacies and collect contributions.
- The non-catered – One big way providers make up the gap is with expanded costs for food. But you can’t charge £15 for some carrot sticks.
- Those with low funding rates – Not everyone gets the same rate. Some areas are working at 50p or more below their normal charges. No amount of top-up fees and expensive lunches can make that work.
- Childminders – With little wiggle room to charge top-up fees and no economies of scale, childminders are often being hit the hardest. If they don’t offer the hours, they lose out to nurseries and preschools.
For some people there is just too much of a gap between what it costs to deliver and the funding rate they are given. “I speak to people weekly sobbing because they cannot make it work and they’re having to close. Life savings, 20 years of work, blood sweat and tears, working at the weekends. And they cannot make it work,” Jo says.
That, is the reality of what 30 hours ‘free’ childcare is doing to the early years sector.
You don’t have to take our word for it. Here is just some of the damning evidence against the 30 hours ‘free’ childcare scheme.
- Two-fifths of providers receive less funding than in 2013-14.
- 62% of providers report that their parent paid fee is higher than the funding rate they receive, and 39% have reported a reduction of their profit or surplus.
- Four in ten providers fear closure in the next 12 months.
- One in four schools think poor children are missing out most as a result of the scheme.
- Providers are losing at least one staffing day a week just to deal with the system, while half charge parents up to £10 a day in add-ons.
- The scheme may be hitting the number of two-year-old places available.
- Nursery closures have increased by two-thirds since the scheme was introduced.
- Only 46% of places are genuinely free, and only 33% in year-round daycare.
- The average shortfall between funding rates and average cost to deliver is 74p per child per hour.
- The data used to calculate funding levels is outdated and predates the introduction of the National Living Wage.
“Four or five months before the Government announced their 30 hours offer, the early years minister at the time, Sam Gyimah, was called in front of the House of Lords Affordable Childcare Committee. When asked what he thought of Labour’s planned extension from 15 to 25 hours, he highly criticised it.
He said that it was not in the best interests of the child and that it would cost at least £1.5 billion, with no idea that a few weeks before the election his own party would add a 50% increase on Labour’s offer, upping it to 30 hours, and promising to do it for effectively two thirds of the money he was criticising Labour for promising.
It is complete hypocrisy in terms of the funding position, and right from the start, they knew there was a problem.”
Neil Leitch, CEO, Pre-School Learning Alliance.
Is there a problem with the concept?
Broadly speaking, most people agree that the desire to get more parents into work is an honourable one.
“We know that for some families, 30 hours makes the difference between it being a viable option to get back in the workplace, increase their working hours, or allowing grandparents to be grandparents again, rather than childcarers,” says Jo.
The problem is that parents shouldn’t be told it is an entirely free service when it’s not being properly funded.
“Fundamentally, we live in a world where it is increasingly tougher for a single parent of a two-parent family to stay at home and keep pace with a reasonable level of life,” Neil agrees.
However, Neil does argue that the scheme may not always be focused on the areas that need help the most.
“It is morally flawed when you have two parents that can earn almost £100,000 each, and only have to work two hours per week to qualify for an additional 15 hours of free childcare,” Neil points out. “Whereas if you have two parents who are on the National Minimum Wage they both have to work 16 hours each before they can qualify for the 30 hours.”
“Here’s my default example. If I was to say to you that everybody gets a free car, naturally, you’re going to going to be over the moon. You go to your car dealership and say ‘I’d like that one please.’
They’re going to say ‘No problem, that’s £400 for the tires, £100 for the seatbelts and £200 for the steering wheel’ and you’re going to be upset that you didn’t get your free car. Because the car may have been free, but the bits that make it work, they cost extra. You’re going to feel pretty resentful about that.
30 hours ‘free’ childcare is just like that. Giving you a car, but not giving you the parts that you need to make it work. Except that we can’t make a parent pay for the steering wheel, we can only ask.”
Jo Morris Golds, Spokeswoman, Champagne Nurseries on Lemonade Funding.
What would work better?
So if there’s not enough money, and the scheme isn’t necessarily helping those who really need it, how can we make a system that works for everyone. For parents, providers, and most important of all, the children? Here are some ideas from our experts.
1. More money
OK, so we’re not exactly reinventing the wheel here. But if we want to solve the problem of an underfunded 30 hours ‘free’ childcare scheme, the natural place to begin is to fight for more funding for cash-strapped providers.
“The sector did not promise the world these free hours,” says Neil, “so it is up to those that made the promise to make sure it is adequately funded.”
2. Regularly reviewed
One problem many providers are facing is the prospect of a freeze on current rates until 2020, all while other costs are still going up.
With the current system, the sector will have to fight battles on every single factor that increases costs in this way, whether that’s business rates, National Living Wage, pension contributions or something else entirely.
Instead, says Neil, we should collect data from an independent body every year and ensure that the funding rates are reviewed in line with certain costings. “That way, instead of lurching from battle to battle each year, we simply adjust the funding in line with those costings,” says Neil.
3. A subsidy, instead of ‘free’ hours
For Jo Morris Golds and CNLF, the answer lies with getting rid of the word free altogether. “Make it a really good subsidy, where the parents get X amount per year which they could use to get their 35 hours here or 20 hours there,” says Jo. “Then, you get the choice of how you use that money and market forces will keep control of the fees.”
To the provider, it doesn’t really matter where the money comes from. So long as it’s not tied to a certain level of care that needs to be delivered, it allows you to set the rates that are right for your business, and parents are no longer hoodwinked about what they are going to get for their funding.
However, not everyone agrees. “I can see the logic in that,” Neil says, “because it means the providers can operate in the open market and parents get to make a choice.”
However, pragmatically, both Jo and Neil have their concerns about the likelihood of government making a U-turn on such a major policy. “The precedent is that the major parties try to top one another, and dropping the word ‘free’ isn’t going to win any votes,” Neil points out. Instead, Labour has actually said they plan to extend the free entitlement, albeit with higher funding rates.
Neil also has concerns that it allows the government to shift the problem, cutting back on the funding while rising costs force providers to charge parents more and more of their entitlement. He also raises concerns of a ‘two-tiered system’ that could be created by subsidies, where those most in need will have to choose bare bones childcare where their subsidy goes further.
“It is the most disadvantaged children that will be pushed further down the line because they can’t pay the top-up fees,” he explains. “The problem is that providers are going to be incentivised to choose those who can.”
In theory though, Jo still believes a move away from ‘free’ is the right move, because choosing a fair hourly rate across an entire area is just not feasible. “We run two settings in Swindon, and our costs in terms of rates and rent are hugely different, but our funding is the same,” she says, “and that’s within the same company and the same local authority.”
The bottom line is that private providers shouldn’t have to subsidise the government’s decisions, no matter where they are. “If the government is going to promise to do something, it must do it,” says Jo. “They have slashed funding for children’s centres up and down the country, and more children take their funded hours in private than state provision. What’s happening is that the government is more than happy to push these costs onto the sector.”
4. More honest advertising
Whether or not a subsidy is the right way forward, it is clear that both the government and local authorities need to advertise more clearly, and more honestly.
The small print makes it clear that 30 hours ‘free’ childcare doesn’t exactly mean what it says on the tin, including that it doesn’t cover all costs and is only 30 hours during term-time. But they didn’t exactly tell the advertising people that…
“Rather than screaming ‘30 HOURS FREE EVERY WEEK’, we’d like the local authority advertisements and information from the government to be more honest about what the parents are getting and what they can expect to pay for,” says Jo.
More awareness and transparency at the beginning of a parent’s interaction with the scheme will make it far easier when they actually go on to claim their funded hours.
5. Means-tested childcare
Leading on from his point earlier, Neil would like to make some changes to the way that the entitlement is provided too.
“I would stagger it,” he says, “giving more access to those who earn less.” Of course, the government tend to dislike means-tested schemes because of the administration involved, but if they really care about social mobility, perhaps funded childcare would be better targeted at those who need it most.”
“My view, and it’s one that’s held by Andreas Schleicher, Head of the Early Years Education at the OECD, is that it cannot be right that we give childcare benefits faster to those people who have not even asked for more free entitlement, than to those who are at the bottom end of the pile economically,” Neil points out.
Do a couple on a combined £200,000 a year really need 15 extra hours free childcare? Neil would suggest that perhaps they don’t. “It would have been better to have supported more families that have a real need, with a better quality of care and better support, than to try and spread this pot to try and win votes. And I’d suggest that’s exactly what it was.”
But, what can you do?
It’s all well and good trying to unpick how the policy could be improved, but what can individual providers do to improve the situation?
The first thing is to not give up hope that change is possible. As you’ll find in our free 30 hours guide, there are some ways to try and work around the problems. But in the long-term, we need real change to the policy.
“We as a sector over the last ten years have changed from being on the end of massive public criticism in the media about pricing, over to what is fundamentally high press-support for our sector,” says Neil. “They know we are being stitched-up by the government. They’ve seen the figures and now they’re being supportive.”
But when providers are increasingly forced into drastic measures to make up the shortfall? “When providers are forced to start charging £15 for lunch per day to make up for the shortfall in funding, somebody will say this is a rip-off nursery,” says Neil. “That’s what I fear. I understand this is the only way we can make it work now. But the longer term solution with free entitlement must be adequate funding.”
Becoming part of crucial campaigning groups like Champagne Nurseries for Lemonade Funding and joining membership organisations like Pre-School Learning Alliance can help, and doing things like writing to your MP is crucial in getting your voice heard. But for Jo Morris Golds, it will always go back to the parents.
“The most important thing a provider can do is to get to their parents,” she says. “Because if every provider can get to every parent that uses them, that’s how awareness spreads. They make up a far higher number of voters than we providers do alone.”
The truth is, it’s not just providers – parents have been duped too. They’ve been told they’re going to get something for free, and found out that’s not what they’re getting at all.
“Get your parents to at least understand first, even if you can’t get them to contribute. Because parents can be our biggest allies,” Jo finishes.
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