I beg to move,
That this House has considered the future of nurseries and early years settings.
I thank the Backbench Business Committee for granting this debate, which is a coming together of the all-party parliamentary group for childcare and early education, which I chair and which fights for the private, voluntary and independent sector—PVI—and the APPG on nursery schools, nursery and reception classes, which does good work campaigning for the maintained nursery sector. We will hear shortly from one of its vice-chairs, my right hon. Friend the Member for Chipping Barnet (Theresa Villiers). The hon. Member for Birmingham, Erdington (Jack Dromey) cannot take part today but is also very much involved in that group and was a co-sponsor of the debate.
The two parts of the sector are distinct, but they share the same grave concern about what the future holds. As a constituency MP, I am fortunate to represent both. There is a mature but, it must be said, struggling PVI sector with providers such as Kings Worthy, St Paul’s, Colden Common, and Compton and Shawford to name a few. There are many others. I thank them all for making me properly aware of the sector and its challenges in the first place, alongside my brilliant wife, who is a qualified at level 3 practitioner, so I hear it very clearly. I also have Lanterns, a maintained nursery school, in my patch; I thank its headteacher, Lynsay Falkingham, for her persistent and focused contact with me.
I will start with some positives. We all welcome the fact that the Government committed to an increase in early years education investment in last week’s spending review. That is another example of the Government recognising the crucial role that early education has in improving future attainment and economic success for the wider economy. As one of my constituency providers put it in an email to me this morning:
“I hope that in your debate, you are able to put across to the House the importance of sound Early Years Care and Education. The future of our country, our leaders, our doctors, engineers, teachers, key workers…rests in the hands of Early Years teachers and practitioners.”
I shall do my best.
I think I speak for many when I say that our childcare providers have really been the fourth emergency service during the pandemic, caring for the carers and helping the helpers. That has been so important to keep the show on the road, and it shows how important it is that we support the sector going forward. As the National Day Nurseries Association says in its excellent recent report:
“A plan for jobs needs a plan for childcare.”
To stick with the good news, it is very good that the Government are implementing our manifesto promise to provide 30 hours of funded childcare each week for parents of three and four-year-olds, which should increase the availability of affordable early education provision. Just because that is the right policy, however, it is not without unintended consequence.
I really appreciate that the Chancellor recently met me and representatives from the APPG for childcare and early education in Downing Street to discuss making childcare more accessible and affordable across the PVI sector. We did that because we cannot duck the fact that there remains a serious underfunding issue that has, unfortunately, been exacerbated by the covid-19 pandemic.
I have previously described to the House that the sector is experiencing a form of market failure—I stand by that—but that could also be a social failure if we get this wrong. In reality, the financial implications have often meant closures in the most disadvantaged areas, as providers have been forced to cross-subsidise their income—often unsuccessfully—with parental fees. The sector has struggled to make ends meet for years, and many providers feel that they have reach the end of the road as we reach the end of 2020.
By September last year—well before the pandemic hit—there had been a 153% increase in nursery closures since the 30 hours’ free childcare policy was introduced. In essence, we have delivered one part of sustainability for the future, but we now need to finish the job by increasing funding for settings to a sustainable level. Many of the providers that I speak to discuss market failure with me. It is little wonder when 25% of providers across the country could face permanent closure within the year. Recent research found that 72% of maintained nursery schools expect to end the year in deficit, raising the risk of further closures in the maintained sector, too.
The whole sector faces a real challenge, not only because of the effects of the pandemic but, more importantly, because of an unsustainable position at the heart of the sector’s funding, which we have to rectify. The issue affects every Member of the House—it is good to see such turnout on a cold and wet Thursday afternoon—because the impact across our country will be stark if we get it wrong. I would argue that we need a complete overhaul of the current system to ensure long-term sustainability in the sector and value for taxpayers’ money.
Prior to covid, the funding gap in the early years sector was estimated to be £824 million. At that point, there was already a 37% funding deficit between the hourly costs of delivering a funded childcare place for a two-year-old and the rate paid to providers, and a 20% funding deficit for places for three and four-year-olds. That is not a sustainable long-term position. Those figures are based on pre-covid occupancy rates. Settings
are still struggling despite now being allowed to remain open to care for and educate our children. The funding gap has had a cumulative effect as the years have gone by. I passionately believe that addressing that gap would go some way towards reversing that market failure and the pattern of closures that we see all too often.
In short, I would like a funding mechanism to increase funding rates in line with the rising costs of delivering childcare. Statutory wage rises, increases in pension contributions and inflation rates all erode the balance that providers must maintain to remain financially viable. The £66 million increase in early years spending in this financial year, which was announced at the 2019 spending round, was obviously a welcome cash injection. Sadly, many settings saw it as a real-terms funding cut once inflation rates and the minimum wage rise in April had been taken into account, and I have heard that over and over again. Financial constraints also mean that nursery owners are largely unable to offer their staff long-term career progression and incentives for upskilling and gaining qualifications. We heard very powerfully about this at a recent meeting of our APPG.
Of course, covid has had a particularly savage impact on the sector, with increased costs and decreased revenues for many settings. There has been a decline in occupancy rates and child places, as well as increased costs to make the settings that are open safe through the personal protective equipment and additional cleaning that is obviously necessary. With just a quarter of providers saying that they expect to make a profit between now and March 2021, we have to take action to protect them for the future.
Last week’s spending review included a pledge from the Chancellor of £44 million of additional spending on early education, on top of the money confirmed in 2019. This is good news, of course: those vital funds will increase the hourly rate paid to providers for the Government’s free hours offer, and are also a step towards sustainability for the sector. However, the underlying problems with structural funding and distribution by local authorities remain acute, and will remain so unless they are properly addressed. An independent, meaningful review into the current system for childcare and early years funding will give us the chance to address the underlying, systemic problems with the early years national funding formula, to ensure some long-term sustainability.
Four years after the introduction of the early years national funding formula I mentioned, the maintained nursery sector is still waiting for stop-gap funding to be replaced with a long-term formula that addresses the historical discrepancies and funds all nursery schools viably. The announcement of £60 million in supplementary funding for maintained nursery schools in 2021-22 is hugely welcome, but there are some crucial next steps. First, funding should become a permanent part of the early years funding settlement, not a year-by-year add-on. Being in such uncertain terrain is adding huge stress to the people who run these settings. Secondly, this funding should be distributed on an equitable basis across the country, not on the basis of historical precedent, as is presently the case.
It is crucial that future funding arrangements for maintained nursery schools adequately provide for them to meet their statutory obligations as schools, which they are: for example, funding for additional costs such as the well-deserved teachers’ pay award. While that extra £60 million in funding is welcome, it is clear that here, too, a long-term sustainable financial solution must be found for the sector as a whole.
For all providers, the early years national funding formula can be—if we are being polite—something of a minefield. Requirements and entitlement distributions differ greatly across different national authorities, which creates a complex funding context for providers operating in one region, let alone several. It is complex, bureaucratic and incoherent, and we are often told that it makes a tough job even harder. The current system must work better for settings and parents, but also for taxpayers—our constituents.
Cash for funded entitlement places relies on local authorities estimating demand, and then on them making corrections to this rough draft partway through the financial and academic years. This has created an unhelpful culture of large contingency funds and underspends of taxpayers’ money that is neither providing the childcare provision it is meant to, nor supporting the settings it is meant for. Millions of pounds intended to deliver funded childcare places is often either redirected into other parts of local authority education budgets, or held in reserve to cover the inconsistencies that emerge throughout the year as they try to flatten things out.
A freedom of information request to all English local authorities found that three quarters of councils had underspent their early years allocation, which amounts to more than £65 million failing to reach providers for eligible children. It showed that contingency budgets of up to £32 million were being held to allow for funding corrections this year. This is taxpayers’ money, and we have to do better. Urgent reform to safeguard the future of nurseries and early years settings across the PVI and maintained sectors is desperately needed, for all the reasons I have set out. That will ensure better value for money for the taxpayer, maintain this vital early education—particularly for disadvantaged children, who need it most—and protect the jobs of 360,000 people who work in the sector, the vast majority of whom are women, while also enhancing their career development prospects.
For me, this is an issue of social justice. I am very pleased that Ministers are working with us to do all that they can. I know the Minister here today will take on board the concerns I have highlighted. We have shown we can work together to protect health throughout the pandemic. It is time we worked together to protect the long-term future of our education system. That needs to start with early education, so let us get it right from the very start.