Many childcare providers facing big financial problems

The Institute for Fiscal Studies has warned that the loss of income from parent-paid fees since March will mean that many childcare providers face a tough time keeping their doors open.

A total loss of income from parent fees would have put a quarter of private-sector nurseries at risk of running a significant deficit during lockdown, with less than £4 of income for every £5 of costs. That’s more than double the number which were running a significant deficit prior to the pandemic and is despite government support through continued public funding and the substantial furlough and self-employment schemes.

Even though childcare settings were allowed to open to all children from the start of June, the IFS says that by the start of summer holidays demand for childcare places remained 70 per cent below the levels seen before the pandemic. This means that there is a risk that some childcare providers will close, creating a shortage of places once demand returns to ‘normal’ levels.

Analysing how childcare providers’ finances are likely to have been affected by the lockdown, and how they might look going forward, the research found that, even if all childminders received self-employment grants, the total loss of parent fees could see an additional almost 30 per cent of childminders now earning less than £4 of income for every £5 of costs.

Additionally, continued funding for the free entitlement during the lockdown means that providers that rely mostly on public funding have so far seen their income largely protected. However, funding will be reassessed in 2021 based on January pupil numbers, risking a loss of capacity if demand is sluggish at the start of the year before picking up over the spring and summer terms.

Christine Farquharson, Senior Research Economist at the IFS, said: “Childcare closures during the lockdown saw providers’ incomes take a big hit. While government support cushioned the blow, especially for settings mostly reliant on public income, we estimate that half of childcare providers were at risk of earning less than £4 of income for every £5 of cost during the lockdown if they took in no fees from parents. The lockdown hit providers of all sizes and in all areas, but childminders – who entered the crisis with weaker finances on average – were more exposed than other types of settings.”

The research was carried out by the the Institute for Fiscal Studies alongside the University of Birmingham, Frontier Economics, Coram Family and Childcare, and the University of Surrey.