Dear Parents, This Is Where Your Expensive Nursery Fees Are Going

When you break down the costs, it's no wonder some nurseries are going under.
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Nursery staff aren’t paid that much, yet childcare fees are crippling parents – so what’s going on?

The reality is that there are plenty of hidden costs involved in running a nursery which many of us don’t think about – and with the cost of living rising, it’s about to get a whole lot worse.

Nurseries, like any bricks-and-mortar business, have to pay all the usual overheads you’d expect like rent or mortgage payments, buildings insurance, business rates, gas, electricity, water, and council tax – not to mention staff salaries.

But because they care for children, there are other hidden costs, like regulatory expenses. We’re talking DBS checks, annual Ofsted and ICO fees and insurance costs – as well as training costs in mandatory areas such as first aid, food safety and child safeguarding.

Then there’s the price of supplying food and drink, nappies and wipes, cleaning materials and first aid supplies, and all those obvious things a parent would expect from a nursery like toys, arts and crafts, and outings. The list goes on.

As Neil Leitch, CEO of the Early Years Alliance, tells HuffPost UK: “The delivery of not just affordable childcare, but high-quality early education, doesn’t come cheap.”

Park Lane Nursery in Nuneaton – which forms part of the Park Lane Primary School – currently cares for 54 children, aged between two and four years old.

The nursery is lucky in some respects as it is merged with a school so lots of its costs are shared. However total outgoings – including staff salaries, which take up the bulk of the budget at £121,911 – are still just shy of £150,000 a year.

The average salary of a UK nursery worker is £21,000 according to Totaljobs. Nursery nurses can be paid anything between £18,000 and £25,000 depending on where they’re based, and nursery managers between £30,000 and £45,000.

Of the 54 children at Park Lane Nursery, 19 are two-year-olds and 35 are three-year-olds. Based on the set amount of government-funded free childcare, eight are entitled to 15 hours (per week) of funded care for two-year-olds. All 35 three-year-olds are entitled to 15 hours (per week) of funded care, and 16 of these are also entitled to 30 hours (per week) of funded care for three- and four-year-olds.

These ‘free’ hours are funded by the local authority, which pays the nursery £5.66 per hour for funding free places for two-year-olds and £4.30 per hour for funding places for three- and four-year olds.

Normal nursery fees are £15 ‘per session’ – which is either three hours in the morning, or three hours in the afternoon. That equates to £5 an hour.

The free hours funding is a bone of contention for some nurseries, as many would – and do – argue it’s not enough.

The support is only for the provision of childcare and does not cover the cost of meals, consumables or additional services. This is why some parents will be charged extra by nurseries on top of their free hours.

Carrie Clare, executive head of Park Lane Primary School and Nursery, says the nursery is a not-for-profit and they’re currently breaking even: “So far the cost of living crisis hasn’t impacted us, but we expect it will do.”

She also notes that as they are a nursery within a school, their costs “are probably less than a private nursery” and believes more government funding is needed to help childcare settings stay afloat.

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For many other providers, it’s not unusual to make a loss each month. A survey by the Early Years Alliance in March this year found that for 86% of childcare settings, funding for the three- and four-year-old early entitlement scheme does not cover the cost of delivering places – with around a third (30%) of providers operating at a loss.

Like many businesses, childcare settings are bracing themselves for a tough – and expensive – winter. As are parents, who already face some of the most expensive childcare costs among leading economies, according to the Organisation for Economic Co-operation and Development (OECD).

In fact, the TUC has warned that the cost of early years care for a child under two could rise to £2,000 a month by 2026.

In July, the UK government set out new plans to “ensure high-quality and affordable childcare is accessible to all” by opening up the childminder market and proposing to change staff-to-child ratios so that a nursery staff member can look after up to five two-year-olds (rather than the current allowance of four).

Most recently, in this week’s mini-budget, Kwasi Kwarteng, Chancellor of the Exchequer, confirmed the government will bring forward reforms to improve parents’ access to affordable, flexible childcare, but with little detail of how he plans to do that. The government confirmed more will be shared in due course.

But those working in the industry – which is already facing extreme recruitment and retention challenges – say piling on further stress to nursery staff through staff-to-child ratios isn’t the answer.

In October 2021, a survey revealed more than eight in 10 settings were finding it difficult to recruit staff and over a third of respondents were actively considering leaving the sector. What’s more, one in six said staffing shortages were likely to force their setting to close permanently within the year.

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Neil Leitch of the Early Years Alliance, says that while childcare settings spend the majority of their income on staff wages, “years of government underfunding has meant that many educators are on little more than the national living or minimum wage”. As such, people are leaving the industry for better-paid positions in sectors such as retail and hospitality, he adds.

Ros Marshall, the managing director of nationwide nursery chain, Bright Horizons UK, tells HuffPost UK that nurseries have to invest heavily in their people, training, premises and other resources.

“At the moment, however, there is a shortage of qualified staff across the sector,” says Marshall. “We recognise the cost of living crisis is affecting many people. But putting additional burdens unreasonably on nurseries doesn’t help – if anything, it will make the sector’s recruitment problem worse.”

Helen Donohoe, policy advisor at the Professional Association for Childcare and Early Years, says that in addition to recruitment and retention, other issues are swirling around in the background for the childcare sector.

The government recently announced support with rising energy prices, which will give settings some breathing space in the short-term, but “it does not go far enough to address all the other challenges they face,” says Donohoe.

Many providers are having to make swaps to cheaper food supplies, cut back on resources and activities for the children in the care, and let go of staff whose wages and training they can’t afford, she adds.

“Nurseries, like other types of early years and childcare provider form part of the critical infrastructure in our communities and set children up for the best start in life,” she continues.

“It is time we saw government acknowledge this through the meaningful investment that the sector needs. Central to this will be increasing the hourly rate paid to providers to provide ‘free’ childcare places to reflect the true cost of delivering that offer.”

At last October’s spending review the government announced additional funding for early years entitlements, so local authorities can increase hourly rates paid to childcare providers.

But Donohoe says her membership body is “concerned” the situation will only worsen over the coming months – and that without a government strategy to ensure the future sustainability of the sector, the sector “will continue to see preventable closures of valuable services for families and practitioners leaving for better paid jobs elsewhere.”

The overall number of childcare providers in England dropped by around 4,000 between March 2021 and March 2022, according to figures from Ofsted.

Other ways to ease the burden could be support for energy bills after the initial government relief period ends, as well as exempting eligible early years settings from paying business rates, as is already the case in Scotland and Wales.

HuffPost UK put all these suggestions to a government spokesperson, who insisted that “improving parents’ access to affordable, flexible childcare is a government priority”.

They said: “We have spent more than £4bn in each of the past five years to support families with the cost of childcare. The number of childcare places available remains stable, as it has since 2015, and thousands of parents are benefitting from this support.”

The spokesperson added that the government is “investing millions in better training for staff working with pre-school children”, has set out plans to help providers run their businesses more flexibly, and is offering further support for non-domestic energy users, including early years providers.

But Leitch says that without realistic long-term government funding, running childcare businesses efficiently is “fast-becoming an impossibility”.

“The government simply must properly fund the early years sector if settings are to be financially viable throughout the current cost-of-living crisis and beyond,” says Leitch. “Anything less is likely to be little more than a sticking plaster.”