NDNA Annual Nursery Survey

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1 NDNA Annual Nursery Survey England Supported by 1 NDNA Annual Nursery Survey England NDNA Annual Nursery Survey England 1

2 Introduction Winning the Childcare Challenge Four months from the general election, childcare is top of the political agenda. The Childcare Challenge politicians must address is balancing the conflicting priorities of cost, quality and choice for parents. England s 18,000 nurseries providing childcare and early education for almost one million children are at the frontline of the childcare debate. The sector faces challenges funding doesn t cover the cost of free nursery places, business burdens push up fees and staff pay is constrained. But nurseries also have great expertise and commitment to the high-quality childcare and early education that makes a difference for children and families. 15 HOURS FREE FUNDING Whatever the shape and colour of the next government, resolving the Childcare Challenge will be critical to delivering on pledges to parents, giving children a great start and boosting economic recovery. This report sets out the state of the nursery sector as we head to May 2015 and proposes the solutions that will enable the next government to win the Childcare Challenge for children, parents and the economy. Falls short of costs... 2 NDNA Annual Nursery Survey England

3 Key issues Funding Funding for free 15 hour per week nursery places falls short of costs by 800 per child per year for every three and four-year-old place and 700 for every two-yearold place. Most nurseries are underfunded for three and four-year-old places, with around half suffering shortfalls on the newer two-year-old offer. Underfunding has been reported by NDNA in six successive nursery surveys over four years. Despite a rising cost base, driven by pay, utilities and business rates, funding paid to nurseries by local authorities is stagnating, with most giving no increase. Costs are set to increase in 2015 with pension auto-enrolment responsibilities coming in for many small and medium nurseries. Pressure on nurseries, most of which are small businesses, is increased where payment of funded hours is delayed, with 37% of respondents reporting payment four weeks or more after the start of term. This chronic underfunding has skewed the nursery business model. Nurseries are forced to make up their losses by pushing up the fees parents pay for additional hours of childcare beyond the free 15 hours, or for children below the entitlement age. Funding shortfalls are also constraining nurseries engagement in the two-year-old offer and expansion plans. On average nurseries are offering 11 funded two-year-old places, no increase on last year s NDNA survey, and only a small number are planning expansion of places for the two-year-old offer. Department for Education figures show the vast majority (96%) of funded two-year-old places are in private and voluntary nurseries. With an estimated 41,000 1 two-year-old places still to be found, and occupancy levels in this survey suggesting up to 190,000 places available in private and voluntary nurseries, there is a great opportunity for government to open up capacity in the sector by resolving funding issues. 800 PER THREE & FOUR YEAR OLD CHILD PER YEAR 700 PER TWO YEAR OLD CHILD PER YEAR 3 NDNA Annual Nursery Survey England

4 CHILDCARE CHALLENGE SOLUTION Free early education should be free to the family and free to the nursery not subsidised by it. Private and voluntary nurseries are essential partners to government providing high-quality, flexible free places to meet parents needs. The next government should: Protect early education funding in the school budget so it can only be spent on under-fives. Implement a national funding formula for schools and early years, so local authorities are funded on a consistent level per child. In consultation with the sector, set and publish a realistic national funding level for early education places, and link it to inflation in line with nurseries rising costs. Work with the nursery sector to ensure any commitments to expand free hours are thoroughly costed so they can be delivered without making provision unsustainable and reducing choice for parents. Commit to a long-term review of the overly complex early education and childcare funding system, to bring together the multiple funding streams parents have to navigate into one simple childcare account. Business burdens The burdens of business rates and VAT are pushing up the cost of childcare and constraining the ability of nurseries to expand to offer more places. The average annual business rate paid by nurseries is almost 16,000. Most nurseries are not able to benefit from small business rate relief, as their rateable value at an average 30,000 is well above the threshold. CHILDCARE CHALLENGE SOLUTION The community benefit from nurseries providing early education and childcare should be recognised with help to keep costs down for parents. Recognising the expertise of nurseries and putting them on a level playing field with schools will support quality and widen choice for parents. The next government should: Give all childcare provision, including the private sector, 100% relief on business rates Make VAT on childcare zero-rated, keeping fees down for parents and stimulating capital investment in nurseries Use existing spare capacity of 190,000 places in nurseries and support nurseries and schools to work in partnership. 4 NDNA Annual Nursery Survey England

5 Pay With 77% 2 of nursery income spent on staff pay, low levels of funding for free nursery places, averaging 3.80 per hour in this survey, and the pressure on parents budgets limit nurseries ability to reward their staff. The Living Wage movement has put nurseries and other caring sectors in the spotlight. Local authorities are looking at their own Living Wage policies and in some cases exploring extending this to their commissioned services, including providers of nursery places. Most nurseries are only able to pay the Living Wage to some of their staff, with less qualified staff often paid at lower levels. Nurseries estimate that being required to pay the Living Wage would push up fees by 13%. CHILDCARE CHALLENGE SOLUTION Childcare should be a career of choice, with a well-rewarded workforce. The next government should: Set early education funding at a level that enables all nursery workers at all levels to be paid at least the Living Wage. Increase the Early Years Pupil Premium to at least the level received by primary schools, recognising the benefit of investing in children in their early years. Create a workforce investment fund with clear criteria and targets to achieve the vision of a well-qualified, world-class workforce. Survey Results Key challenges Nurseries reported the top five challenges they faced as: Increasing staff wages Delivering a sustainable free nursery education offer Cost of utilities Achieving a profit or surplus Cost of business rates The top challenges are the same as those identified by nurseries in the NDNA Autumn 2013 survey. 5 NDNA Annual Nursery Survey England

6 Occupancy Occupancy in Autumn 2014 is 73%, marginally down on the Autumn 2013 figure of 75% The range of occupancy reported varies widely according to nurseries individual circumstances, with lower occupancy in recently opened nurseries and those suffering from a challenging local childcare market. Nearly half (45%) of nurseries reported increased occupancy, but 36% had suffered a decrease on the past year. 73% OCCUPANCY Patterns of occupancy continue to reflect how nurseries are meeting the needs of parents for increasingly flexible use of childcare. There is also an increasing dependence on funded hours, in part driven by two-year-old places. 73% report more part-time children 65% report more children using funded hours only 44% report more use of informal care by family and friends Fees 85% of nurseries are considering raising their fees in the next 12 months, with increases most likely to be in the range of 2-3%. Nurseries report the pressures on their cost base, particularly wages, as driving fee increases. PERCENTAGES NURSERIES PLAN TO RAISE THE FEES 1-2% 2-3% 3-5% More than 5% 85% OF NURSERIES ARE CONSIDERING RAISING FEES 0% 10% 20% 30% 40% 50% 6 NDNA Annual Nursery Survey England

7 Confidence Confidence is mixed with 49% reporting a positive level of confidence about the next 12 months, but 31% giving negative scores. Expectations of profitability are also mixed; 59% expect to make a profit or surplus, 32% to break-even but 9% expect to make a loss. Expansion The majority of nurseries (54%) are not planning to expand; a similar level to % reported plans to expand, with reasons given including offering more two old places, acquisition of existing nurseries and development of new nursery sites. We asked nurseries if they planned to extend their offer in the next year, and if so, how. Offering more flexibility was the most common response, with 65% reporting plans. 34% planned to extend opening hours and 28% to offer out of school care. Partnership with schools 43% of nurseries report working in partnership with schools in a variety of ways, a similar level to The most common form of partnership is offering early education off the school site, followed by wraparound care for under fives off the school site. WORKING IN PARTNERSHIP WITH SCHOOLS Yes offering out of school provision on site (over 5s) Yes offering out of school provision off site (over 5s) Yes offering wrap around care on school site (under 5s) Yes offering wrap around care off school site (under 5s) SCHOOL Yes offering early education on school site (under 5s) Yes offering early education off school site (under 5s) Yes offering two-year-old places on school site 43%WORK IN PARTNERSHIP WITH SCHOOLS Note: This chart shows response percentages from the 43% who are working in partnership with schools. Yes offering two-year-old places off school site 0% 10% 20% 30% 40% 50% 7 NDNA Annual Nursery Survey England

8 Free nursery education places Almost all nurseries (96%) are offering funded places for three and four-year-olds and 86% are offering two-year-old places, reflecting the major contribution of the nursery sector to the government s early education offer to parents. Some nurseries are, however, choosing to opt out of the free offer, with 12% choosing not to offer two-year-old places and 5% choosing not to offer three and four-year-old places. Nurseries are cautious about further expansion of places, with 65% planning no more funded two-year-old places, 6% planning to reduce their offer, and 19% planning to offer more places. A large majority of nurseries are suffering losses on the provision of free places for three and four-year-olds and nearly half are making losses on the newer two-year-old offer. Despite the challenges faced by nurseries, and their increasing cost base, most are receiving the same level of funding as in the previous year. Three & four-year-olds 96% OFFERING PLACES AVERAGE HOURLY RATE 3.80 Two-year-olds 86% OFFERING PLACES AVERAGE HOURLY RATE NDNA Annual Nursery Survey England

9 Cash flow is a critical issue for nurseries, most of which are small and medium sized enterprises. Timeliness of payments to nurseries by local authorities varies. 37% report payment four weeks or more after the start of term, with 13% having to wait eight weeks or more for payment. Meanwhile a majority (29%) report authorities paying at the start of term or within four weeks (33%). Hourly rate change 3 & 4 year olds: Increased 20% No change 67% Decreased 5% 85% NOT COVERING COSTS AVERAGE HOURLY LOSS ANNUAL LOSS PER CHILD PER PLACE 46% NOT COVERING COSTS AVERAGE HOURLY LOSS ANNUAL LOSS PER CHILD PER PLACE 65% planning no more funded two year old places 9 NDNA Annual Nursery Survey England NDNA Annual Nursery Survey England 9

10 Early Years Pupil Premium With the Early Years Pupil Premium of 300 per year for qualifying disadvantaged children to be introduced in April 2015, we asked nurseries how they expected to use the additional funding. Whilst welcoming the added support for disadvantaged children, nurseries suffering shortfalls in funded places say the additional 300 will be absorbed in the losses they are already making on funded places. Investing in staff resources is a key priority for nurseries and they are looking for creative ways to do this. Nurseries however report that the level of funding means that most will be unable to commit to employing more Early Years Teachers, whether solely or through joint recruitment with other nurseries. Nurseries report focusing additional investment for provision for disadvantaged children in three broad ways: People staff development and training, backfill and support roles to free up Early Years Teachers to spend more time with children, increasing pay, increasing staff: child ratios to have more staff working with children, offering 15 hours a week year round, rather than just for the required 38 weeks. Partnership supporting the costs of integrated working with other professionals, eg health, social workers, speech and language therapists; working with parents and focusing on the home learning environment. Physical resources and equipment, outdoor provision, to subsidise lunches for children not entitled to a free school meal in a private or voluntary nursery setting. 10 NDNA Annual Nursery Survey England

11 Business Rates Most nurseries have a rateable value well above the threshold for small business rate relief of 12,000. Rates are an overhead, with a direct impact on parental fees, that is only suffered by private nurseries as voluntary sector and maintained sector provision benefit from relief and exemptions. BILL AVERAGE BUSINESS RATES BILL 15,841 SMALL BUSINESS RATE RELIEF 12 K AVERAGE RATEABLE VALUE 30,417 MOST NURSERIES RATEABLE VALUE IS WELL ABOVE THE 12K THRESHOLD FOR SMALL BUSINESS RATE RELIEF 5.4% AVERAGE INCREASE IN PAST 12 MONTHS 11 NDNA Annual Nursery Survey England

12 Ofsted Two-thirds of respondents have been inspected since the introduction of Ofsted s 2012 Early Years Inspection Framework. Survey respondents, largely NDNA members, again overall report higher than sector average Ofsted grades, with 24% outstanding, 64% good, 11% requires improvement and none rated inadequate. Most reported their outcome was the same or an improvement on their previous grade, but 12% said it was a downgrade. OFSTED OUTCOME An improvement on previous grading A downgrade The same as previous grading Did not have a previous grading 0% 10% 20% 30% 40% 50% 60% The majority of respondents (85%) agreed with their inspection outcome and 66% rated their Ofsted experience positive or very positive, however, 9% rated it negative/very negative. Of the 15% that did not agree with their overall judgement, many had made a complaint to Ofsted and just one had seen their grade changed from inadequate to good following a re-inspection. Of those downgraded, none had local authority funding removed for three and fouryear-olds, but 13% lost two year old funding. 12 NDNA Annual Nursery Survey England

13 Pay The majority of nurseries (82%) plan to increase pay in the next 12 months. Most plan increases of 1-3%. Nurseries staff costs are set to increase in 2015 with pension auto-enrolment responsibilities coming in for many small and medium size businesses. INTENDED PERCENTAGES FOR STAFF PAY INCREASES 0-1% 1-2% 2-3% 3-5% 5+% 15% 50% 28% 10% 2% With the Living Wage movement growing, we asked nurseries how their levels of pay matched up. Only 12% pay all staff the Living Wage with 15% saying they pay it to most staff and the majority (75%) paying it to some staff. Local authorities are increasingly considering their Living Wage policy both for their own staff and commissioned services, including nursery education. A small minority of nurseries say their local authority has said they should pay the Living Wage (3%), though this is not being imposed as a contractual condition as yet. Nurseries say they would like to pay the Living Wage, but are limited by the level of funding they receive from their local authority and affordability for parents. The impact of paying the Living Wage to all staff is estimated as a 13% increase in fees to parents. IMPACT OF LIVING WAGE ON FEES +13% 13 NDNA Annual Nursery Survey England

14 Across The UK Offering funded three/three & four-year-old places Offering funded two-year-old places Average hourly funding for three/three & four-year-olds Making a loss on funded places for three/three & four-year-olds Average hourly/annual loss per child on three/three & four-year-olds Average hourly funding for two-year-olds Making a loss on funded places for two-year-olds Average hourly/yearly loss per child two-year-olds Working in partnership with schools Occupancy Average business rates paid Intend to increase fees in 2015 ENGLAND SCOTLAND WALES 96% 90% 45% 86% 16% 28% % 84% 86% , % 75% 29% ,050-43% 42% 50% 73% 76% 69% 15,841 12,520 10,048 85% 66% 55% Survey details The annual nursery survey was conducted online from 21 October to 27 November The survey received 309 responses from nurseries across all the English regions. The respondents were from a mix of provision: 51% single site nurseries and 49% part of a nursery group ranging from two sites to large providers. 93% of respondents were private nurseries, 7% voluntary/community and 1% maintained 3. 1 Children and Young People Now, August Department for Education, Childcare Providers Finances Survey Percentages do not sum to 100 due to rounding 14 NDNA Annual Nursery Survey England

15 Who we are National Day Nurseries Association represents children s nurseries and pre-schools across England, Scotland and Wales, giving them information, training and support, so they can provide the best possible early learning and childcare to young children. NDNA is the voice of the sector, an integral part of the lives of one million children and their families. National Day Nurseries Association National Early Years Enterprise Centre Longbow Close Huddersfield HD2 1GQ tel: fax: Search for National Day Nurseries Association Search for National Day Nurseries Association NDNA Cymru Swyddfa 2 Ty r Goron 11 Stryd y Ffynnon Rhuthun Sir Ddinbych LL15 1AE ffôn: ffacs: e-bost: NDNA Cymru Office 2 Crown House 11 Well Street Ruthin Denbighshire LL15 1AE tel: fax: NDNA Scotland The Mansfield Traquair Centre 15 Mansfield Place Edinburgh EH3 6BB Tel: With thanks to sponsors Pound Gates Pound Gates is delighted to be supporting NDNA s Annual Nursery Survey. Now, more than ever, it is essential to understand how the sector is responding to and dealing with the range of issues it faces. Pound Gates offers specialist insurance for day nurseries, out of school clubs, holiday clubs and more. Our comprehensive products include property protection, business interruption, employers and public liability as standard plus many more optional covers to ensure tailored protection for your business. Pound Gates is an NDNA member benefit partner minimum 10% discount for members. Tel: Company Limited by Guarantee Registered in England Company No VAT No NDNA is a registered charity in England and Wales ( ) and Scotland (SC040610) Published January NDNA Annual Nursery Survey England

16 National Day Nurseries Association NDNA Annual Nursery Survey England

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