A perfect storm: Alliance analysis on the future of the early entitlement offers

This month marks the start of several new policy changes for early years settings in England. National living and minimum wage is increasing across all age groups, alongside sharp rises to employer National Insurance contributions, while updated guidance on how settings should deliver early entitlement hours, including clarification on the rules on additional charges, has raised concerns among many in the sector.

But what will these changes mean for nurseries, pre-schools and childminders in practice? And what impact, if any, will that have on the ability - and willingness - of early years settings to deliver funded entitlement places?

In March, the Early Years Alliance conducted a sector-wide survey on this very issue – and the results made for an incredibly worrying read.

• 94% of providers are likely to increase fees for non-government funded hours over the next year, with eight in ten introducing or increasing optional charges

• 77% said they are likely to introduce or increase the price of optional extras, such as nappies, meals and trips across the same period, with 68% likely to restrict when funded hours can be claimed

“The funding just doesn’t cover the costs. We’re a term-time setting with no options to restrict or limit hours to gain more income. With costs increasing in all areas, we will have to make detrimental cuts to our outstanding services which will create a poorer quality or education and care.”

“We try and keep costs as low as possible as a charity pre-school, but with increasing expenses and a minimal funding increase, I do not know how the next year or two will go. If there is a similar increase of NMW next year and the funding rate does not match this percentage, we will probably close.”

“The gap between funding rate and daily rate has become too big to bridge [so I’m] giving serious consideration to dropping three- and four-year-old funding altogether and filling any vacancies with two-year-olds. However, funding for two-year-olds – at the current rate – will fall below cost of delivery within three years, so future longevity is a serious concern.”

The Early Years Alliance is calling on the government to take urgent action to mitigate the impact of upcoming policy changes by:

• increasing investment into the early years – with a particular focus on increasing funding rates for three- and four-year-olds – to ensure that providers are able to meet rising cost pressures while keeping parent fees as low as possible
• establishing a mechanism to ensure that funding rates continue to increase in line with provider costs going forward
  
• either exempting early years providers from the National Insurance changes or committing to compensating providers in full for the increases.
  

Neil Leitch, CEO of the Early Years Alliance, said: “These survey findings should set alarm bells ringing across government. At a time when ministers are looking to significantly expand the early entitlement scheme, we have a huge proportion of providers warning that the exact opposite is likely, with many forced to limit funded places or opt out of the offers entirely due to unsustainable financial pressures.

“While we of course recognise the need to ensure clarity and transparency for parents when it comes to additional charges for entitlement places, the fact is that this updated guidance has been implemented against a backdrop of severe and sustained underfunding, which the government has yet to address, or even acknowledge. Add to this the impact of upcoming increases in both National Insurance contributions and the national minimum and living wage, and you have a perfect storm of challenges for early years providers – one that many will not be able to survive.

“If the government is to have any chance of ensuring that families can access the quality, affordable early years care and education that they’ve been promised, then it needs to support the businesses that deliver this. That means ensuring that funding actually meets the cost of delivering high-quality places, both now and in the future, so that providers don’t need to rely on additional charges to keep their settings afloat and are able to withstand changes like the upcoming National Insurance rise.

“It is one thing to recognise the importance of the early years, but it is quite another to deliver the financial and practical support that settings need – and make no mistake, our sector needs it now. We therefore urge the government to work with the sector and ensure that the early years gets the investment it needs to deliver on the promise made to parents – before we reach the point of no return.”