Dave Williams’s childcare business made a substantial loss last year for the first time in 30 years, despite him raising his nursery fees twice in recent months.
The director of The Orchard Private Day Nurseries chain in Derby, a city in the East Midlands of England, said the funding crisis affecting providers like him would be heightened this year as the government rolls out a significant expansion of free childcare for working parents.
From April, the current entitlement to 30 hours of free infant care a week for three- and four-year-olds in England will be gradually extended to all infants over nine months with two working parents until the child starts school.
While some welcome the attempt to support parents as they try to enter the labour force, Williams insisted the policy would exacerbate 10 years of “chronic underfunding”. “It’s utterly unsustainable and everybody knows it,” he said.
The situation facing the sector was so perilous, he warned, that both of the sites he oversees were considering placing a limit on the number of children they accepted under the new entitlement, leaving families stranded without care options.
Childcare experts warned the infrastructure was not there to deliver ministers’ plans, which will have the unintended consequence of forcing providers to close their doors.
Neil Leitch, chief executive of the Early Years Alliance, an educational charity and membership group, said research had found many groups were intending to limit the number of funded places they offered and in some cases to opt out entirely.
The group estimated that providers received about £4.80 per hour from the government for each three- and four-year-old they looked after but the true costs of provision were closer to £7.50 per hour.
“The value of the vouchers that I get per hour are worth about half of what it actually takes to deliver an hour’s care,” said Williams. “If I delivered all the childcare based on the value of the vouchers that I get, well, I’d be out of business within two months.”
The expansion of the entitlement, announced in the Spring Budget, follows a sharp decline in the number of nurseries and childminders over the past decade.
The number of infant care providers in England fell 5 per cent between 2022 and 2023, according to Department for Education figures published last month, in part driven by a 10 per cent fall in childminders.
Between 2018 and 2023, the number of providers fell by 15 per cent while the total for childminders, individuals who look after children in their own home, fell by 31 per cent, the data showed.
Sarah Ronan, director of the Early Education and Childcare Coalition advocacy group, said it was not only a “crisis of affordability” but a “crisis of availability”.
“The government is setting parents up for disappointment because the sector just will not have the infrastructure to meet the demand,” she said.
Nurseries and childminders already had waiting lists of up to a year, she added. In some areas lists were made up mainly of children who had not yet been born. “Names are literally being put down while children are in utero.”
Claire Chapman, owner of the Suffolk Childcare Agency, a body which oversees and supports childminders, said providers were suffering from a crippling mix of rising costs, shortages of qualified staff and underfunding.
Speaking from her home in Wickham Market in the east of England, she said that electricity and heating bills were, for many, still rising, while business rates and insurance costs had added further strain.
Meanwhile, staff who felt undervalued were leaving the profession. “We had a wonderful woman who closed her childminder because she felt she could get a better wage stacking shelves in Aldi,” Chapman said.
Currently, parents of three- and four-year-olds can claim 15 or 30 hours of free childcare a week during term time. The overall cost of extending the entitlement to parents of one- and two-year-olds is expected to cost the government about £5bn a year by 2027-28.
To improve the supply of childminders chancellor Jeremy Hunt has set up a pilot scheme offering a one-off cash incentive for childminders of £600, rising to £1,200 if they join through an agency like Chapman’s. But Chapman said the uptake would not compensate for the rate of closures.
However, despite these misgivings, some have welcomed the reforms as a step up for adults wishing to re-enter the jobs market.
Ben Willmott, head of public policy at the CIPD, the professional body for HR and people development, said the proposals “had the potential to boost parents’, and particularly women’s ability, to work while supporting efforts to improve labour market participation and address skills shortages”.
“There is also evidence that high-quality early years provision can aid efforts to improve social mobility,” he said, adding that there needed to be a co-ordinated “implementation strategy” if the benefits were to be realised.
The Department for Education has defended its plans, saying ministers were “rolling out the single biggest investment in childcare in England’s history”.
A DfE spokesperson said the government was “confident in the strength of our childcare market to deliver 30 free hours of childcare for eligible working parents from nine months old up to when they start school”.
They noted that there had been year-on-year increases in the number of early years staff and spaces and added the government was investing “hundreds of millions of pounds to increase hourly funding rates”, and £100mn in capital funding for more places.
Despite the reassurances, Chapman remains concerned about the lack of places to meet the demand. “The spaces just aren’t going to be there for them — it’s heartbreaking.”
