Could a relaxation of childcare ratios be inevitable?

As HM Treasury will have to dig deep in order to fund costs associated to delivering the promised 30 hours, Courteney Donaldson, MRICS, Director & Head of Child Centric Sectors, looks at some of the key issues and asks whether an announcement from the government re-tabling an intention to relax staffing ratios is inevitable. 
 

Current Underfunding

Many operators already report that they are underfunded to deliver 15 hours; 30 hours could present further challenges, unless funding shortfalls are adequately addressed and met.

Key findings from the 2015 NDNA Annual Nursery Survey (England) and research from The Counting the Cost report, Oct 2014 AS delivered by Ceeda found that:

•    Funding for free 15 hours per week nursery places fall short of cost by £800 per child per year for every three and four year old place, and £700 for every two year old place.
•    Despite a rising cost base, driven by (staff) pay, utilities and business rates, funding paid to nurseries by local authorities is stagnating, with most giving no increase.
•    77% of nursery income is currently spent on staff pay and the introduction of the Living Wage will ultimately put more pressure on nurseries, with providers estimating that nursery fees would need to increase by 13% in order for them to pay the Living Wage.

Some 75% nurseries in the UK are owned privately by individuals, partnerships, or companies. The government are heavily reliant on these providers to deliver their 30 hour promise. Despite being pivotal to the delivery of election pledges, childcare providers were not widely consulted ahead of the manifesto announcements, but all providers are expected to rise to the challenge, and what a challenge it may be if it is not adequately and proportionally funded.

Swiftly post-election, the government announced they were undertaking a review of the costs of providing childcare in England, with the call for evidence closing on 10th August. Announcements following the review, and also the Autumn Spending Review are eagerly awaited as providers seek confirmation that they will receive fair, reasonable and sufficient remuneration to cover costs associated to delivering high quality childcare, in keeping with the government’s 30 hour pledge. For far too long cross subsidised costs associated to 15 hours have been evident, for many this is not sustainable, 30 hours could be even less so for some providers, unless adequate funding rates are awarded.
 

Workforce Challenges & Impact of National Living Wage

In addition to campaigning for fair funding rates, many owners share with me that they are becoming increasingly concerned by challenges associated to the UK’s early years workforce. The NDNA Annual Nursery Survey found that staff turnover has increased to 14% (compared to 12% in the Early Years and Childcare Survey 2013) and 55% of staff left for higher salaries moving to alternative employment positions, both inside and outside of the sector.

Additionally, the introduction of the National Living Wage places further pressure on nursery operators. Staff costs are the greatest items of expenditure incurred by nursery operators, with margins in the order of 77%. With increases to the national minimum wage, pension introduction for smaller companies and the introduction of the National Living Wage, staffing expenditure margins will undoubtedly come under greater pressure.
 

Ratio Relaxation 

In 2013, the then Education Secretary, Liz Truss, proposed to increase childcare ratios, suggesting that the number of under-ones a carer could look after would be increased from three to four, and the number of children over the age of two would be increased from four to six. The proposed reform was blocked by then leader of the Liberal Democrats, Nick Clegg, who believed it was “not going to help toddlers in this country and it’s not going to reduce the cost of childcare”, a view shared by nursery operators and parents alike.  Being in constant touch with nursery operators nationwide the Childcare team at Christie + Co saw firsthand the heartfelt concern and distress caused by the potential introduction of ratio relaxations during 2013.

While very difficult to crystal ball gaze, certain facts seem to drive logical considerations: Free entitlement funding for the prevailing 15 hours has a shortfall of between £700-£800 per child; The cost associated to increasing entitlement from 15 hours to 30 hour will be substantial; Government funds are not bottomless and mindfulness is paid to ‘value for money’; Staffing costs for nursery businesses can represent some 77% of revenues –  reducing ratios could have a significant impact in reducing staff costs.  Purely having regard to short terms ‘financial implications’, HM Treasury could favour the substantial savings that such may have on the public purse. While the relaxation of ratios could potentially be inevitable, were such to come to fruition, I envisage that providers and parents are likely to retain autonomy over choice – in the short term at least.