Squaring the circle – is it possible to achieve high quality and affordability?

A recent report by Save the Children confirmed that the cost of childcare is a major barrier for mothers who wish to return to work, and calculated the potential loss of earnings to be £1.2bn a year in England. At the same time, Department for Education figures show a steep fall in the proportion of eligibility codes that have been validated for the ’30 hours’. A 93% shortfall in the number of parents signing up for Tax-Free Childcare is further evidence that the current patchwork system of support for working parents is ineffective, being confusing and bureaucratic for both parents and providers. The government insists that funding for childcare is at record levels, but 30 hours funding rates are insufficient for most providers, and from the perspective of a mother wishing to return to work after maternity leave, 30 hours places are too far ahead in time to be of any help with fees for the first couple of years.

So what can we do to ensure our nurseries survive and thrive financially, and is it possible to combine financial sustainability with affordability? There is only one sure-fire route to financial success: to open a high quality nursery in a location where there is a shortage of childcare places and a local population that can afford high fees. The childcare ‘market’ is not an effective solution to providing nurseries in areas of social disadvantage, and fees that are affordable to some families may be completely beyond the reach of others on lower incomes. Early years practitioners returning from maternity leave are no exception - low salaries in the sector often make nursery fees unaffordable without generous staff discounts. There have been vigorous disputes and there is ongoing research about how much it costs to provide high quality care, but in the meantime, what do we do to balance the books most effectively? Are there areas where savings can be made without affecting quality?

We start by separating out the fixed overheads from those which can be flexed according to occupancy levels and a critical factor here is the size of the nursery. Apart from salaries, rent is usually the largest overhead and there are other premises costs (utilities, water rates, waste disposal, security) which may not be fixed, but can usually be predicted fairly accurately.   Smaller premises may cost less, but economies of scale mean that larger nurseries often cost less per child in terms of overheads – though these only work if we can fill a large nursery! Other costs, like staffing costs, can, in theory, be flexed according to occupancy, but this is often easier with larger staff teams, as smaller nurseries can be ‘top heavy’ in comparison, in terms of management. Economies of scale can also apply to purchasing arrangements, for consumables, licenses, IT systems, software and marketing.   It is no surprise, then, to learn that the average size of nurseries, and of groups, is steadily rising, and ours are no exception. Nurseries below 40 places are not usually financially viable, and ideally 50-60 places make more sense without becoming too large and impersonal – we plan never to have any nurseries with more than 100 places, and at the moment our largest, at Burton Latimer, has 85 places.

Reducing overheads is not as simple as looking for the best deal and finding the cheapest supplier. Cheaper insurance may not offer sufficient protection, which could then prove vastly more expensive in the end. Variable expenditure items may offer more opportunities for cost-cutting, but these are often the areas which most affect the quality of provision, and there are also ethical issues to consider. I would argue that food, for example, is not an area for penny-pinching, regardless of the level of fees being charged. We try to find ways to reduce waste, but we don’t skimp on providing fresh fruit and vegetables. The government may not recognise the importance of inclusion when it comes to meals and snacks, suggesting that these could be optional extras, but snack-time and mealtimes in nurseries offer children precious opportunities to enjoy healthy foods and the social experience of a shared mealtime. The children whose families are least able to afford so-called ‘extras’ are often the ones who need them the most.

Equipment is an area where savings can be made, but this also comes with a health warning. Natural resources, loose parts, and creative materials can often be sourced at little cost, using imagination, the local area, charity shops and scrapstores, and expensive ICT equipment may not offer as much learning potential, but there is still a need for traditional resources, and it’s important to ensure that books and equipment are in good condition and that there are sufficient in quantity to facilitate sharing. Instead of buying in activities from peripatetic teachers we prefer to offer training opportunities to our staff teams to inspire them with fresh ideas of activities to offer. That brings us to the largest overhead of all, but this is one which can’t be skimped, economised or bought on the cheap, without affecting the quality of provision.

The quality of our staff teams is the biggest single factor which determines the quality of provision. Staff qualifications are a significant indicator of quality, and we aim to have at least one graduate leader in each nursery, as well as encouraging all staff to attain a qualification, usually at level 3.   Salaries in the sector have risen in recent years, but need to rise further if we are to solve widespread recruitment problems, and it would help to encourage more men into childcare. Training and professional development opportunities are also not nice-to-haves but essential, for staff retention and for maintaining high standards.

The government’s cost analysis for 30 hours was based on 2015 figures which took no account of rising overheads, including the national living wage and pensions auto-enrolment, and yet they plan to freeze the rates until 2020! In nurseries which can make up the shortfall with higher hourly rates on additional hours, this may not cause major problems, but it makes it almost impossible to offer them as truly ‘free’ hours. The situation is not sustainable, and at the moment it is relying on parents understanding and accepting that the funding is only a subsidy (and that 30 hours are term-time only). Rather than focus on ways of cutting corners and reducing costs, it is important to ensure that parents (and one day, maybe the government) understand why high quality cannot be achieved on the cheap.

Finally, however, there is a more controversial issue that needs to be raised. The largest providers are expanding and corporate childcare has to make profits for its shareholders and investors. Are decisions about budgets being made with the needs of the children at the forefront, or about what will ‘sell’ the nursery to parents? The large chains don’t target nurseries situated in areas where parents struggle with affordability, so are we heading for a two-tier system where government funding is subsidising fees for professional parents, but not helping the parents and nurseries that most need it? We hope to provide a solution with our social enterprise structure, which uses cross-subsidy to ensure that nurseries in disadvantaged areas can offer high quality at affordable rates.