Making up the shortfall

On Friday 1 September the government’s flagship policy to provide working families with 30 hours of free childcare came into effect. If you cast your mind back to the 2015 general election, you’ll remember both Labour and Conservative manifestos offered a commitment to provide funded childcare places. It’s clear that in principle this is a policy with widespread support.

As this is a new initiative from the government, it’ll take time until we can see the full impact of the policy. It’s still too soon to provide a full evaluation of the scheme’s implementation, however, there is plenty to go on.

The premise of the policy is fairly straightforward, parents of three- and four-year-olds who work more than 16 hours per week and earn a maximum of £100,000 per year each are entitled to 30 free hours of funded childcare. It’s one of the few social policy initiatives to offer parents something new, standing out from the Conservative cut backs and restrictions we’ve become all too used .

That should not and does not make the offer exempt from criticism. And there is an enormous amount of research that should have given ministers in the department of education pause of thought long before now.

To say that the sector is up in arms about the policy would probably be an understatement. The most contentious issue is, of course, the levels of funding. The national funding formula determines how much each local authority will receive for each hour of ‘free’ childcare delivered. The department of education strongly encourages local authorities to pass on as much of this hourly rate to the childcare providers as possible, however they do take a small percentage to cover the costs of administration.

This is the point where the scheme begins to break down, as the hourly funding from government is far less than the private rate. The average number of childcare hours used by a family is 26 per week. Previously, 15 of those hours would be funded by the government meaning practitioners could offset any losses by charging market rates for the next 11 hours. In this average scenario, all the hours used by a family will now be government funded, which means opportunities to make up the shortfall are limited.

On the day of implementation research from the respected Pre-School Learning Alliance starkly laid out how hard our successful early years sector will be hit. Nearly three quarters of providers said government funding does not cover the true cost of providing a place. Further, over a third warned they wouldn’t be financially viable in a years’ time. Their chief executive Neil Leitch plainly stated that providers were forced into closure because of the 30 hours policy.

The next day the New Economics Foundation warned the funding issue could lead to pay cuts across a sector not known for high wages or high profit margins. Their research showed that in order for a provider to break even on the government funding they would have to pay staff just £7.33 per hour which is below the minimum wage and against the law.

Caught between a rock and hard place, providers are going to have to make up the shortfall somehow. They’re doing so in a number of different ways. One is by restricting the times that the ‘free’ hours are available. For example, a provider is within its rights to offer funded hours for up to ten hours a day Monday to Wednesday, but if a parent wishes to use the provider on a Thursday or Friday, they will have to pay the going rate.

Another way is by charging parents additional charges: providers aren’t allowed to add supplementary charges to the childcare, however they are allowed to charge for food, nappies and days out. Plenty of practitioners have openly said they’ll use this money to pay wages and keep the lights on.

As progressives, this should concern us.

The policy is available to a wide spectrum of people. A single parent working 16 hours on the minimum wage taking home £120 per week and a family where both parents earn £100,000 per annum have exactly the same right to the childcare in theory. Although we all know who is going to be adversely affected by restrictions and additional charges. The purpose of this policy is not to subsidise childcare for the better off while others are priced out and we must not allow that gap to happen.

It’s this and more that I’ll be keeping my eyes on in the coming months. Already we know that initial take-up has been low. The entitlement was originally presented as a doubling of the previous 15-hour entitlement, which over 900,000 children receive. The Tories said that the new offer would provide over 600,000 places. But when they unveiled the policy in government, they had imposed restrictions. Ministers have said this left 390,000 children entitled to the 30-hour offer. But just 216,000 codes were issued by the deadline – barely half of those eligible and a third of the number promised.

Of those 216,000 children, 29 per cent of them still haven’t secured a funded place. If there’s a places shortage already, will the policy make it through its first year?