Nurseries in crisis: Private childcare providers 'significantly underfunded' by councils

Private childcare providers in Scotland are getting a ‘raw deal’ when it comes to council funding, figures show.

The National Day Nurseries Association have accused councils of failing to pay fair rates to private nurseries and childminders.

Many private providers say the money they receive per child is not enough to meet costs and is less than what council-run facilities get.

It comes after First Minister Humza Yousaf promised to expand free childcare even further to include babies as young as nine months old in his programme for government announced in September.

But with rising costs, funding concerns and a declining workforce, providers say they are already under enough pressure.

Since 2021, more than 100 nurseries have closed across Scotland and within the last year the country has seen the loss of 347 childminding businesses.

Sandy Towers, chair of National Day Nurseries Association and director of Colinton Nurseries in Edinburgh said funding is “not being distributed equally” by councils.

‘The current system is broken’

He told STV News: “It’s been really difficult due to significant underfunding from government and local authorities.

“Private nurseries are really keen to participate in 1,140 hours but being financially squeezed makes it difficult to participate.

“It makes it very difficult for private providers to retain staff and in a time of inflation in salaries and general costs, it puts pressure on businesses and impacts sustainability.”

Since it was expanded in August 2020, funded early learning and childcare is available to all three and four-year-olds, and eligible two-year-olds.

They are entitled to 1,140 hours a year of childcare.

Figures from the National Day Nurseries Association found councils source an average of 28.3% of their funded hours from partner providers like private and voluntary nurseries or childminders.

By contrast, councils only allocated 22.8% of their ELC spending to this delivery.

In total, 23 councils (79% of those which could be analysed) are paying their private partner providers proportionally lower than the number of hours they are delivering.

With funding not always reflecting the amount of hours delivered, childcare providers continue to worry about their futures.

Mr Towers added: “I think their focus should be fixing the current system which, in my opinion, is broken.

“We’ve been trying to engage with councils to agree a sustainable rate and (to ensure) that its reviewed in August in line with increased costs and inflation, but the engagement has been mixed across Scotland.”

“The difference in the hourly rates could be as much as £6 an hour, which is significant.”

Parents have raised concerns over whether the plans to expand the childcare scheme are realistic.

Mum Kelly Brown, whose children attend Colinton Private Nursery, said: “I think there has to be a balance.

“At the moment, it is a while until they do get funding so it is an expense and I know that I am fortunate with my salary that I can get back to work.

“But for some mums, that is a consideration, they can’t go and they have to be the child’s carer until they get to a place at school.

“Nine months is maybe a bit ambitious and a leap from where they are just now.”

Mum Kelly Brown said the government's childcare funding expansion may be 'a bit ambitious'. — Mum Kelly Brown said the government’s childcare funding expansion may be ‘a bit ambitious’.

Renfrewshire reports largest gap of 21.2%

The average gap between what was delivered and what was paid to providers across Scotland was 5.5% in the current academic year, but 13 of the 32 councils had a significant gap of over 5%.

Renfrewshire reported the largest gap of 21.2%, followed by Glasgow City Council with a 15% difference and Moray with 14%.

Seven councils had a gap of 10% or more between what they procured and the budget they allocated for this.

Four councils were paying providers more than the proportion of hours they delivered and one council had an even split between the two.

Three councils did not fully answer both questions and it was not possible to analyse another one’s response.

How was the data analysed?

The data and differential allocations was revealed through an investigation by National Day Nurseries Association Scotland which made Freedom of Information requests to all local authorities to ascertain what proportion of their total ELC hours was delivered by private, voluntary and independent providers (PVI).

The same request also asked what proportion of their ELC budget they paid to PVI providers.

NDNA Scotland put out their findings into funding rates across Scottish local authorities in August, discovering that only three local authorities had increased their hourly funding rate sufficiently to cover rising staffing costs.

The Scottish Government published its Financial Sustainability Health Check of the Childcare Sector in Scotland in the summer, stating that providers costs were going up by 14% this year.

The investigation into proportion of delivered hours against proportion of budget discovered:

23 councils have partner providers delivering a higher proportion of hours than ELC budget
Four councils are paying more as a proportion of ELC budget than hours provided by partners
Scottish Borders has equal proportions
The average gap where the council is paying more budget than hours is 2.20%
The average gap where the council is getting more hours than budget is 7.13%
13 councils have a significantly higher gap (+5%) – three councils (Clackmannanshire, Fife and Midlothian) did not fully answer both questions
It was not possible to analyse Comhairle Nan Eilean Siar’s response

Purnima Tanuku OBE, chief executive of National Day Nurseries Association (NDNA) Scotland said: “Funded early learning and childcare is a key plank of the Scottish Government’s strategy for reducing poverty and improving children’s outcomes. The 1,140 policy was supposed to ensure that funding follows the child but council data is showing that’s still not the case.

“Everyone knows that the costs of running a home and a business are still going up but childcare settings are seeing their funding squeezed. The rates they receive from councils are not keeping pace with their costs and the allocation of funding doesn’t always reflect the amount of hours being delivered by partner nurseries.

“The impact of this is huge. If private and voluntary run nurseries are not funded at a rate that allows them to pay their staff a competitive wage, they will continue to lose them to the public sector or they will leave to work in sectors like retail or hospitality.

“This risks undermining the Scottish Government’s offer and its principle of parental choice. For many working families, private and voluntary nurseries offer the flexibility that they need, opening for longer hours and all year round. Partner providers need councils to be paying genuinely sustainable rates to deliver 1,140 hours, especially as the two-year-old offer is being extended.”

A Scottish Government spokesperson said: “High-quality early learning and childcare, that is flexible, accessible and affordable is critical to giving children the best possible start in life – which is why the Scottish Government is investing around £1bn in the sector in 2023-24 alone and the Programme for Government set out further ambitious plans.

“We recognise the valuable role that private, third sector and childminding providers play in the delivery of this offer and will continue to engage with stakeholders, including through the National Childcare Provider Forum.

“Sustainable rates for private, voluntary and independent providers increased by an average of 57% for three to five-year-olds between 2017-18 and 2022-23. We will publish the latest data on rates in the new year and will continue to work with local authorities to strengthen the rate-setting process where required.

“Ministers are aware that the childcare sector is currently facing real challenges due to the ongoing cost of living crisis, workforce pressures and the lasting impacts of the pandemic.

“We are working with the sector to provide further support for providers – including paying £12 per hour to staff working providing funded hours in the private, voluntary and independence sector in 2024-25.”