Realising the extended free childcare offer: Insights from our research on nursery closures

The announcement that a free childcare entitlement of 30 hours per week would extended to all children whose parents work from age 9 months up by September 2025 has generated a lot of excitement. If landed, it could prove transformational, unburdening families from exceptionally high childcare costs in the earliest years, reducing poverty, empowering parents to make positive choices about going back to work and enabling greater numbers of children to access quality experiences that enhance their outcomes. The question on everyone’s mind is: can it be delivered?

But for the new offer to become a reality, it will need to successfully harness and build capacity amongst childcare providers. There is a long distance to travel.  Only half of local authorities are said to be fully confident of having sufficient childcare provision for children aged 2 currently. One might imagine that an unprecedented £4 billion injection of public funds would be more than enough to turn things round, but sector bodies are less convinced about the rates that will be offered and the extension removes one of childcare providers’ key financial props – the ability to cross-subsidise low government funded rates through fees charged to parents of babies and toddlers.  The worst case is an underfunded offer that pushes an already fragile childcare market into free-fall.

The government will be conscious that past predictions of crisis have not come to bear and overall, the national level data from Ofsted does not necessarily suggest that there is one now. The number of early years settings has declined over the years (largely due to childminders exiting, but also consolidation to larger nurseries), yet places for this age range have remained broadly stable.

So how bad is the situation really and what is needed? Today the Local Government Association publishes new research and analysis by my colleague Natalie and me at Isos Partnership which offers fresh insights on the nature, drivers and impacts of recent nursery closures.[i] Our report shines a further light on some of the challenges the new extension will need to surmount. There are at least five key points worth taking note of.

  1. Although nursery capacity is broadly stable at national level, some areas are being hit hard by significant closures, and some reductions are not showing up in the data. Despite no evidence of a dramatic drop in the number of private and voluntary nurseries or places in 2022 at national level, we found that variation across local authorities is substantial. And there is evidence that the number of areas losing nursery provision is growing – forty per cent of councils we heard from saw a spike in nurseries closing in 2022, compared to the year before. In addition, interviewees in areas of high closure told us they were seeing a growing number of temporary or partial nursery closures driven by staff shortages which are not reflected in data.

  2. A further decline in nursery numbers seems reasonably likely before the extension even starts.  Nursery owners and managers clearly depict a uniquely challenging financial environment characterised by both cost-of-living hikes (utility bills, rent, insurance and food) and increased agency and recruitment related expenses – all against government funded rates which have failed to keep up with inflation. In areas of high closure, a number of owner-managers told us they were working with no meaningful take-home salary just to keep the doors open for now, and planning leave the sector soon. The increase in the National Minimum Wage from April was considered by many as the straw that could break the camel’s back. The period from now until promised funding increases kick-in in September will be especially precarious.

  3. The impacts on disadvantaged communities should be a particular cause for greater concern. Although a larger number of the 2022 “leavers” from Ofsted’s Early Years Register were in better off areas, the data shows that more new nurseries are opening in those areas too off-setting any obvious differences in reductions in provision by area deprivation level. Local authorities are most concerned the impacts of closures on higher deprivation areas and lower income families and we believe there are three reasons for this. First, there is lower sufficiency of childcare places in poorer areas in the first place (comparing provision available to ONS early years population data by area we found that there are fewer places available for children in poorer areas, even accounting for childminder and school places). Second, we think that settings serving poorer families in better off areas are likely to be being disproportionately challenged as they can’t charge their parents more. Third, when settings close families are commonly faced with paying more or travel further - leaving poorer families with fewest options.

  4. The workforce exodus is not abating – salaries need to become competitive for a sustainable future extended offer. Across the board, those we spoke to reported that the nursery workforce exodus continues apace since the pandemic, with many said to be opting for better paid, more flexible roles in retail – or less stressful roles with fewer responsibilities and longer holidays in schools. Owners and managers describe a pincer movement, with a changing landscape of employment opportunity on the one hand, and growing pressures on staff within settings resulting from rising poverty, mental health issues and complexity of need on the other. There’s nothing new in nursery workers feeling undervalued. But this now appears to be having tangible impacts on the amount of provision available. Children with emerging special educational needs especially are increasingly reported to be being turned down for places due to an inability to secure the staff to support them.  And high turnover is said to be damaging quality and setting resilience, leading to burnout amongst leaders of small settings especially.

  5. A more active approach to market management is needed in order to protect a balance of provision that meets the needs of all families.  It is clear that the challenges described are impacting some provider types more than others. Small private and voluntary settings (who make up the vast majority of provision) appear more vulnerable to staff leaving than those in larger chains who tend to be better buffered by having the ability to draw down on central funds for “golden hand-shakes” to new staff, health and lifestyle goodies and free childcare places for employee’s children. Aggressive expansion by larger chains does not for the time being seem to be a concern on local authorities’ minds (many are perceived to be retreating to more profitable “leafy suburbs” – and as I have argued recently, make a positive contrition to the overall offer), but fear the growth of some smaller, highly leveraged private chains employing very low qualified staff putting additional pressure on vulnerable but historically strong providers. They have very few powers to stop this when it happens and the new extension, and greater flexibility around child:staff ratios, could well entice a gold rush of these types.

All of this sounds very difficult, yet the promised extension lays down the gauntlet for a radically more ambitious offer and has generated political momentum that is hard to turn the clock back on.  The policy offers the opportunity – and imperative - to re-draw the system so that it is more sustainable and works better for families. Beyond further investment, it will require a proactive approach to nurturing this essential workforce and much smarter thinking about how funding is differentiated to protect and grow valued provision, especially in the poorest areas. This is a task for local as well as central government. As local authorities take on responsibility for funnelling the vast majority of childcare spending, they are well placed for this – but will require improved capacity, knowledge and levers to do the job properly. 

At Isos Partnership we are already starting to work with individual local authorities to support them to develop foresight in this area and plan out exactly how to get the best out of the new offer, including through building a deeper understanding of what parents want, how local providers may respond and the risks they will need to manage.

[i] The report, Nursery Closures: Research on the nature, impact and drivers of nursery closures in England, is available now on the LGA and Isos Partnership websites. Analysis took place between December 2022 and March 2023. We explored published data from Ofsted and DfE in 2022, conducted a temperature check survey with local authority early years leads across England (65% national response rate) and carried out interviews with providers and local authority early years teams within three areas experiencing high levels of closure. The report makes a series of recommendations for local authorities and for central government.

 

Jodie Reed