Nursery Sector: Sustainability — [Mike Gapes in the Chair]

– in Westminster Hall at 9:30 am on 10th October 2018.

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Photo of Chris Green Chris Green Conservative, Bolton West 9:30 am, 10th October 2018

I beg to move,

That this House
has considered the sustainability of the nursery sector.

It is a pleasure to serve under your chairmanship, Mr Gapes. I appreciate the opportunity to have this important debate on the sustainability of the nursery sector. In recent years, I have increasingly seen and heard concerns about the sector, both through the media and through conversations in my constituency. What really brought the issue to a head for me was a meeting with the Federation of Small Businesses and a couple of local nurseries. They raised their current concerns about sustainability, rising costs, and the lack of a level playing field within the sector. Following that, I surveyed all of the nurseries in my constituency and got an incredibly strong response. Most of the nurseries replied, which shows that there is a great deal of interest in improving and reforming this area.

I will first talk about the enormous contribution that nurseries make to children and families in all of our constituencies. Nurseries provide a wonderful start in life for children. They provide opportunities for socialisation for children who are at home during their earliest years, so that they can meet other children in increasingly large age-based groups. When I say “socialisation”, I do not mean socialism; I mean the broader sense of meeting other people in the local community. Nurseries are also valuable for helping children prepare for primary school, as we know that people have concerns about how ready children are to take that step in their lives.

Nurseries are also important for parents, who can get advice about what they are doing as they raise their children, and meet other parents. Sometimes, having young children can feel very isolating for parents, and nurseries provide a good forum for them to meet other parents, get advice, and feel confident that they are doing the right thing—or to seek further advice if, perhaps, they are not. Nurseries provide parents with a very useful break from the children, and increasingly both parents work. The traditional, old-fashioned style of one parent, typically the mother, staying at home to raise the children is not so prevalent these days. Normally, both parents work, and nurseries provide a very important service, enabling both parents to go to work or perhaps re-enter the workforce.

Working in a nursery can be a great deal of fun: it is an enjoyable, rewarding form of work, and a nursery is also a really good business to own and run, because it is an interesting part of a local community. People who work in nurseries can see the children develop over the years, and the importance of the contribution their nursery makes to all those families.

The initial introduction of the universal 15 hours a week of free childcare was followed by a further 15 hours, but since then, there has been concern that funding has not kept pace, and does not provide all the moneys that nurseries require for the care that they deliver. Funding not keeping pace with costs is a concern, and nurseries have been finding ways of supplementing that income without increasing their hourly rate. For example, some nurseries have been charging additional money for lunch that far exceeds the actual cost of that lunch. Across the country, the average charge is about £10 per day. That is a very significant amount of money for a family to have to contribute on a weekly basis when they believed that the 30 hours of childcare was free. There is a strong narrative that what is offered is 30 hours of free childcare, which leads to problems for families when they are managing their budgets. They may have had a family conversation about whether a parent staying at home should go back to work, and what the household accounts would look like if they did, but if they then get a request from the nursery for more funding, that creates problems for that family. Having to have a conversation right from the off about what looks like a demand for more money also creates a difficult start to the relationship between the family and the nursery.

This support is there to help people; of course, there is an aspect of education for the children, but the support is clearly also there to support people in the workplace. However, it last for only 38 weeks of the year. Most people do not work 38 weeks in the year, so what about the remaining weeks in which the family has to make up the difference? Again, many people have the understanding that what is offered is 30 hours of free childcare a week; they would not think that meant 30 hours of free childcare just during school term time, in essence. Of course, that is a concern for many parents, but especially for parents on very low pay, for whom any surprising additional outgoings will be quite a shock to the system.

Across my constituency, nurseries have raised concerns about business rates. If children are supported for 38 weeks, they will often attend for 38 weeks; the parents will look after the children for the rest of that time, or will perhaps find some mechanism involving their extended family. However, the business rates are set as though the business is being operated for the entire year, so if that nursery is over the threshold to pay business rates, it will in effect be receiving the money for 38 weeks but paying business rates for 52 weeks. If there is not flexibility over that 30 hours of bringing in more money, that creates a challenge.

There is also a concern about VAT. If a nursery is associated with a primary school, that nursery has the ability to reclaim VAT, because it is part of an educational institution. However, a nursery not associated with a primary school does not have the opportunity to claim that money back, which does not demonstrate a level playing field between the two. That is a problem. Councils also take a cut, and I welcome the fact that the Government have driven the expectation that the amount of money going from national Government to the council and then on to the nursery will go up from 93% to 95%. I am pleased that Wigan Council has already achieved that goal of 95% of money going to the nursery, and that Bolton Council is a level ahead, with 97% of its money going from the council to the nursery. It is important that councils are recognised for that commitment to ensure as much money goes to nurseries as possible.

Photo of Julie Cooper Julie Cooper Shadow Minister (Health and Social Care) (Community Health)

Does the hon. Gentleman accept that the fact that nurseries are having to look for other ways of raising funding, including charging for meals—I have heard about all sorts of things, such as taking in ironing, or baking and selling cakes—indicates that insufficient funding is coming to nurseries full stop, and that that should be the starting point for dealing with this issue?

Photo of Chris Green Chris Green Conservative, Bolton West

I am very sympathetic to that view. Fundraising by nurseries or other organisations does have a positive aspect for those organisations, but I am very sympathetic to the view that councils have been squeezed, and it is challenging for councils to pass on as much of that money as they would like.

Photo of Barbara Keeley Barbara Keeley Shadow Minister (Mental Health and Social Care)

I congratulate the hon. Gentleman on securing the debate. He is raising some important points about top-up fees and business rates, and their effect on nurseries’ finances. I should say that we are fighting to keep five outstanding local authority nurseries open in Salford, not far from Bolton. They have been put at risk because the Government have changed the way they fund early years provision, leaving our cash-strapped Salford council to find £1.5 million this year. He has outlined how he values nurseries, so does he agree that we should not be in the position of losing any outstanding nurseries? I am sure he would not want to lose five nurseries in his constituency. Will he join me in urging the Minister to help Salford and other authorities whose nurseries are now under threat?

Photo of Chris Green Chris Green Conservative, Bolton West

The hon. Lady and I share a common position. We ought not to be losing any provision, and certainly not the outstanding provision in her constituency. I welcome the Government’s consultation, because it recognises that when new schemes come along, with the pressures on councils, we have to reconsider the ongoing funding and support. The Minister might be able to answer the hon. Lady’s question in that regard.

There is also concern about the ratio of children to carers and about when the bands kick in. Some nurseries have mentioned that perhaps there could be adjustments. It is a complicated subject, so I will not go into the details, but I simply raise that as a concern. Will my hon. Friend the Minister also look at best practice across European countries to see what they do and what works there?

There is a sense that perhaps there is not sufficient flexibility within the system beyond the rigid bands that are set out. I will read out one of the responses to my survey to give a slight sense of the feeling:

“I feel that a professional should be able to decide what ratio would be required depending on the children in each room as well as the level of qualification of staff etcetera.”

There is a sense that if there are talented, experienced and well qualified staff, the ratio needed for a certain group of children might be different from that for a more challenging group of children with staff who are not as well qualified and not as experienced. A little more flexibility might perhaps be considered.

Sometimes a nursery cannot take a child when the family request it at the last minute, because all the age groups are at their limit. Perhaps one parent does not normally go into the office on a Friday, but there is a big project at work and they are required to attend, and the nursery has no space or cannot hire a member of staff just for the one additional child for that day. Because of the way the rules are applied, the nursery does not feel that it can say, “Okay, for this one day we will allow a little flexibility.” Perhaps that could be recognised and allowed within the system, because at the moment some nurseries say that they cannot take a child in those circumstances which causes a problem for the child, for the parents and for the place of work. Could that be resolved with a little flexibility? It would have to be monitored so there was no abuse of the system, but I think it would help all parties concerned. Of course we want transparency, but sometimes there is a conflict between ticking the boxes and trusting the professionals to run a service. We need a slightly better balance between the two.

I want to make the point that nurseries are not right for all children and all families. We ought to recognise that in families where one parent chooses to stay at home to raise the children, it is a wonderful, positive thing, but sometimes parents feel they are being told they are making the wrong decision because they have only one income and they are taxed to support other people who have two incomes. It is almost as though the state tells them that they are doing the wrong thing and they should have someone else look after their children and go off to work.

I am pleased that the Minister is having a consultation, and I have some points that I wish him to address in his speech later. My first point is on the hourly rate of support within the 30 hours. If the entire cost of childcare is not covered, families and nurseries ought to be clear that the childcare support is not free and should be seen more as a contribution towards childcare. Following the example in Scotland and what will soon be the example in Wales, there should be an exemption from business rates for nurseries and equality between independent nurseries and those associated with schools. They should all pay VAT or all be exempt.

Photo of Rachael Maskell Rachael Maskell Shadow Minister (Transport) 9:45 am, 10th October 2018

It is good to see you in the Chair, Mr Gapes, for such an important debate. I thank Chris Green for opening the debate so concisely and for raising many important issues.

First, I must declare an interest. My sister is an early years specialist and a teacher in a nursery, and she lobbies me every day about the sector, but in positive ways. She talks about how it should be reformed, improved, invested in and supported. There are fantastic examples in Scandinavian countries of the level of investment in early years. We are talking not about running a service on a shoestring, but about investing in young lives and making sure youngsters have the best start in life. That is what this debate is really about: ensuring that we put excellence right at the heart of early years. We need only look at the WAVE Trust’s work on “The 1001 Critical Days” to understand the importance of bringing that work into nurseries and then into early years education.

I have been working with the National Day Nurseries Association, and in the summer we met providers in my constituency. That is significant for the Minister because York was the first whole authority pilot for the new funding formula and the new system around early years. Not only the statutory sector but the voluntary and private sectors in York bring to bear the real-life experience of the impact of the pilot, so I want to reflect on that today. Of course, I am also here to problem-solve, so I trust that, between us, we will be able to find some solutions to the challenges.

We are talking not only about education for youngsters, but about the whole life experience—the holistic experience—for young people. I was reminded of the increasing need around language and communication skills that young people need, not least because children are often more screen-fed these days. We need to make sure that we have holistic services, which is where Sure Start and children’s centres came in in early years, and we need to make sure we do not lose that approach. With the Budget coming up and the announcement that austerity is at an end, I am sure the Minister will walk through an open door in making sure that we have the resources we need.

Let me go back to York, the early implementer. Talking to providers right across the spectrum, it is clear that serious financial stress is being placed on nurseries. The dedication of the sector and the creativity of people running businesses make the system work, which is what we would expect of professionals. They want the system to provide good, safe services that benefit children and make sure they have the best start in life. York did a lot of preparation through the pilot to ensure business sustainability, and it put business planning support in place for nurseries, which has helped with sustainability in these challenging times of not having the necessary resources. York has also set up a shared foundation partnership, a model where providers come together to talk about the challenges they face and to try to find solutions between them, often signposting families to providers that perhaps have some spare capacity.

However, right across the board, local authorities, private providers and voluntary sector providers are saying that the money is not enough. I want the Minister to understand that. Between £1 and £2 more per hour is needed. The National Day Nurseries Association says that we are £1.90 an hour short. Obviously we need to listen to that evidence base as we move forward.

Financial viability issues are putting real pressure on the sector. Of course, that has been increased by the national living wage coming in, minimum wage costs and auto-enrolment around pension contributions, particularly for providers that want to provide better pensions. We heard about business rates. A nursery provider in my constituency has two nurseries and has paid an increase in business rates of £11,000. That was just the increase. That in itself spells out the real pressure being put on nurseries, which of course still want to provide the best possible service.

In York we have a real challenge around the high cost of living, which means that recruitment and retention is an issue. Of course, when new staff are recruited, they have to go through mandatory training, and in York we want to provide good continuous professional development for staff as well. Often it is the higher paid, more qualified staff who are leaving the sector because of the pressures being put on, for instance, teachers and other professionals. The cost of training and upskilling is therefore also having a negative impact on those providing services.

We need to heed what the NDNA is saying regarding resources, and the Treasury Committee has highlighted how the data the Government used to cost affordability—the amount of money going to the programme—was old data. We therefore need to ensure that affordability is calculated in real time, addressing the real issues that nurseries face today.

We heard examples of how nurseries are being creative to get money, because they obviously need to maintain staffing levels and ensure that children have the best engaged education. We are talking often about £15 to £25 being raised per day. We heard the example of people charging over and above for lunches so that additional money can pay for resources, activities and equipment. Some of the money is going just towards basic staffing costs. This is about getting the essentials right and charging parents for it. So the offer is certainly not free—we need to clarify that—but we want it to be, and that is clearly Labour’s policy. I trust that the Government will step up to the plate.

Other nurseries are restricting the number of children who can be in receipt of the 30 days, or restricting the number of hours available, to ensure that they can balance the books. They are telling me that they now cannot afford to update things such as equipment that is getting old and tatty or other resources. That has a negative impact on a child’s growth and learning. It is important to note that, although we have an excellent education system in York, there is an attainment gap in areas of deprivation. The system is driving greater inequality, and there is concern about that. We are trying to address those issues, and take on board the impact that they are having on young lives.

Nurseries with children who have special educational needs and disabilities wanted me to highlight the impact that the situation is having on them. There is a lack of funding specifically for those children, particularly if they do not have a statement in place. It is also about provision. Often one parent will not work; they will stay at home and be the carer for the child. They therefore do not qualify for the additional hours, because both parents need to work. Alternatively, a single parent could be at home caring for that child, and would therefore be excluded. I ask that that rule is changed as well.

We need to ensure that we are not providing the minimum, but going for the best within the amount of investment we are putting into early years. The costs to the state of getting it wrong are enormous later on in life. We are paying for that now because things have not been put in place right through the education system. Let us put the investment where it really makes a difference.

Photo of Barbara Keeley Barbara Keeley Shadow Minister (Mental Health and Social Care)

My hon. Friend has just introduced something that ties in with the situation in Salford that I outlined: the impact that our nurseries have on families of children with special educational needs. She also made a point earlier about language and communication. We are potentially losing £1.5 million out of the £3 million cost of running our five nurseries. However, the key point she raises is about the impact, if we cannot save them, that that will have later on education. Parents have told me just how much those nurseries are doing for families with children who have special educational needs.

Photo of Rachael Maskell Rachael Maskell Shadow Minister (Transport)

I thank my hon. Friend for that point. We really have to put the right investment in place for children with special educational needs. We need to give those children the start in life that any other child should expect. We also need to support parents. Parents do an amazing job looking after their children. Having the support of a nursery helps them in their work as well. It is vital that they are not excluded from the so-called “free” offer and that a new exemption is introduced by the Minister. I would be really interested to hear him commit to that today.

We mentioned business costs, which are important. We have heard that nurseries in Wales and Scotland are exempt from business rates. We trust that that can be introduced in England. That would make such a difference to nurseries. Nurseries based in schools and childminders and domestic child carers do not pay business rates, so why do nurseries have to? We also heard about VAT, where we need a level playing field.

The Minister has a real opportunity to reform the funding. York is the example to call on. Those working in the sector have shown dedication, but they are really struggling, and the viability of nurseries, as I saw when visiting them across my constituency this summer, is very fragile indeed. There is a real plea, which is the basis of today’s debate, for the Minister to go back and get the funding that is required. Otherwise, many nurseries could disappear, and that would jeopardise early years altogether.

Photo of Mark Pawsey Mark Pawsey Conservative, Rugby 9:57 am, 10th October 2018

It is a pleasure to serve under your chairmanship, Mr Gapes. I congratulate my hon. Friend Chris Green on introducing this morning’s important debate.

My interest in the sector arose as a consequence of an invitation to visit Pathfinders Day Nursery in my constituency, which is based at Crescent School in Rugby, to discuss the challenges faced by the sector with Alison Dyke, the owner of the nursery and the Warwickshire chair of the National Day Nurseries Association. My interest was aroused partly because I know about the importance of providing 30 hours of quality childcare and nursery education to our youngsters to give them a great start in life and to parents, particularly because it enables those parents who want to get back into the workforce to do so.

My interest was also aroused as a businessman. I was a businessman for 25 years, and some of the issues that were drawn to my attention related to the sustainability and viability of a fast-growing small business sector. I wanted to understand the business implications. A great deal of what I learned at my meeting related to funding, which earlier speakers mentioned.

As a fellow Warwickshire MP, the Minister will be aware that there is variation in the amount of funding that different authorities receive. The national headline funding rate is £4.94 per hour, but as the county authority, Warwickshire receives £4.30 an hour. I had assumed that that meant £4.30 an hour paid to the childcare provider. That, of course, is not the case, because local authorities are entitled to take a deduction. In Warwickshire, that deduction amounts to 5%, which is used by the local authority to fund the early years special educational needs team, to provide some business support and to contribute to the early years provider. That results in a rate of £3.96 being paid to childcare providers in Warwickshire, which Alison tells me is really not enough to provide high-quality childcare or anything more than a bare bones service.

As the Minister will be aware, there is research to support that contention: Ceeda has found that the hourly cost to a provider of each place for a three or four-year-old is £5.08, whereas the average Government funding is £4.34 an hour and Warwickshire pays its providers £3.96 per hour. Ceeda calculates that that shortfall of about £1 an hour adds up to an annual funding shortfall of £63 million for the 30 hours offer for three and four-year-olds nationwide.

The National Day Nurseries Association has found that since 2017, when the 30 hours policy was introduced, closures have increased by 47%, largely as a consequence of financial pressures. It has also found that 19% of nurseries expect to make a loss, while only 43% anticipate a profit or surplus. I have already mentioned the difference between the costs of delivering the service and of funding it. Survey respondents highlighted administration challenges in the sector: 85% said that there is now additional administration to do, while 58% said that managing the complexity of the system is among the challenges they face.

Mrs Dyke is delighted that some parents are now able to access funding and provide a nursery education for their children in a way that they could not before. She and Pathfinders are very proud of the high-quality environment that they offer to children between the ages of six months and five years. They allocate 28 places for three and four-year-olds who receive the extended 30 hours’ funding. Her assessment is that children who attend nursery make extremely good progress in their development and gain an enormous advantage, but she is concerned about how to fund it—I understand that the rate has now been frozen until 2020, despite the increasing costs of labour, staff training and service provision. She is also concerned that for children on the 30-hour funded places, providers are being required to provide a no-frills service, which does not equate to quality childcare.

My hon. Friend the Member for Bolton West referred to the fact that many providers are asking parents to pay for additional services; Mrs Dyke highlights snacks and other food, as well as other consumables and specialist sessions.

Photo of Chris Green Chris Green Conservative, Bolton West

There is also an additional cost for those parents who need 40 hours of childcare and have to pay a separate rate for it. They may not have a higher income—they may still be on a very low wage—yet they may be subsidising additional hours for other parents who are on the 30 hours.

Photo of Mark Pawsey Mark Pawsey Conservative, Rugby

That is exactly my constituent’s point: there is a differential, and those on the higher rate are effectively subsidising those on the Government-funded rate. A further problem that Mrs Dyke identifies is that parents are not obliged to pay for the additional services. If all parents refused to pay it, more businesses would become unsustainable, quality would be compromised and providers would have to either stop offering the 30 hours or shut down completely. At a time when we are working hard to extend provision to more and more children, that is a matter of concern.

I know that the Minister is aware of Mrs Dyke’s concerns, because I wrote to him about them and he was kind enough to send a prompt reply, which I have passed on to her. I look forward to his speech; I hope that he will share some early indications of the results of the Department’s evaluations and that we will continue to push forward and develop this very important sector.

Photo of Julie Cooper Julie Cooper Shadow Minister (Health and Social Care) (Community Health) 10:05 am, 10th October 2018

It is a pleasure to serve under your chairmanship, Mr Gapes. I am grateful to Chris Green for securing this debate on a really important subject. I will not make a lengthy speech, but I would like to follow up on a few of his points, to which I listened with great interest.

I appreciate and fully support the hon. Gentleman’s comments about the value of the nursery sector to working parents and the importance of its availability, but I will focus on its value to children, particularly those from deprived communities. Worryingly, extensive research shows that as many as 35% of children arrive at school with language skills that are inadequate or below the level expected of their age group. It is important that we distinguish between childcare and the educational value of this excellent sector; Ofsted judges more than 90% of providers as outstanding in providing exceptional support for children’s development. For children in deprived communities, that is often a lifeline for the entire family.

When parents have so many life challenges to deal with, the daily support of qualified professionals can make the difference between getting by and not getting by, and can be crucial to children’s life chances. Highly qualified and well-trained staff can often pick up developmental issues, mental health stresses and strains, or special educational needs. They can nip problems in the bud and search out specialist help at a very early stage, which has an impact further down the line. Extensive Oxford University research has shown the value of investing in early years.

I understand that organisations in the sector have business costs, but I would prefer that we saw them as an educational service for children in their early years—a national priority. The current funding arrangements are complex and extremely fragmented, and many nurseries and nursery schools are in danger of closure. I fully understand the pressures on local government; my local authority has endured nearly 60% of cuts to its funding. However, what I seek from the Minister today is recognition that early years should be part of the Government’s plan to increase social mobility and educational attainment and to enhance our economic opportunity as a nation by ensuring that every child can contribute.

I hope that the Minister is listening and that he will try to change the focus—and maybe the Prime Minister’s mind. Instead of focusing on the impact of things like grammar schools, let us get investment into the early years where it will make the real difference. Education does not begin at 11; it begins in the early years. If we invest in children and ensure that they have that opportunity in their early days, they will reap the benefits tenfold in their later educational life. I dare say that we will all benefit from that.

Photo of Rushanara Ali Rushanara Ali Labour, Bethnal Green and Bow 10:09 am, 10th October 2018

It is a pleasure to serve under your chairmanship, Mr Gapes, and I congratulate Chris Green on securing the debate. As we have heard, our nurseries play a vital role in children’s development and in preparing them for their future education and careers; if we get it right, they play a very important role in promoting social mobility and alleviating poverty. Improving standards should be a central part of that, along with ensuring that they are properly resourced.

Since the Government introduced the new early years funding formula and the 30 hours free childcare policy in 2017, 121 nurseries in England have closed, which is a 66% increase in closures from the previous year. That is a very worrying figure when we know—from the Government’s commitment to provide 30 hours and so on—that their intention is not to see a decline in nursery provision, but that is what is happening. Of the nurseries that have closed since the policy was introduced, 71% received an hourly funding rate of less than £5 per child. A total of 44% received the lower hourly funding rate of £4.30 per child. These recent closures are affecting thousands of families. To be charitable to the Government, I believe this is an unintended consequence of a well-intentioned but flawed policy.

Although I welcome the 30 hours free childcare scheme for working families, the range, complexity and fragmentation that have been mentioned have made take-up less than desirable. Some of the things that have been introduced include the 15 free hours for disadvantaged two-year-olds, the 30 free hours for three and four-year-old children of working parents and the tax-free childcare scheme. In parallel, the childcare voucher schemes have been closed to new entrants, but no assessment has been done to see what the impact would be on those who have benefited and others who could benefit from it. That is despite requests from the Treasury Committee, which I serve on. Although the time was extended, there is still a lot further to go in looking at how childcare vouchers could be used to continue supporting families where schemes have worked well.

The funding situation is underlined by the wider concern about passing on the requirement to increase wage levels as a result of the national minimum wage, and about pension contributions and business rates. Yet, the Government have not faced up to the fact that nurseries cannot afford to pay for that without national Government support. Nor can local authorities step in any longer—again, because of the context of unprecedented funding cuts over many years to local authority budgets.

The wider context is that, in constituencies such as mine, where schools have worked in partnership with nurseries to co-finance and support them, that is no longer an option. Despite some of the changes after the general election, the school system still faces some £2 billion-worth of cuts under the so-called fair funding formula, which is nothing short of a disgrace and is certainly not fair to constituents such as mine, who have seen a massive cut in school funding. Those options, which have been a huge help in protecting nurseries in constituencies such as mine, are no longer available.

The number of free places for disadvantaged two-year-olds and children with special educational needs and disabilities—something I know the Minister cares deeply about, given his brief—is falling because those children are more expensive to care for due to the higher staff-to-child ratios. The Government have not taken that on board; if they did, they would recognise the important contribution that nurseries working with SEND children make in our constituencies. Two-year-olds are currently not eligible for support from the disability access fund, the early years pupil premium or the SEN inclusion fund, all of which could be used to improve their access to early years provision.

After campaigns and petitions—one petition received over 10,000 signatures—the Government committed in the 2017 early years national funding formula to continue the level of funding for maintained nursery schools until 2019-20 through a supplementary grant of £59 million per year, but there are no guarantees that this will continue after 2020. Our maintained nurseries are left unable to plan and are, as Members will hear shortly, facing closure in some cases. It would represent a 31% cut if there is no continuity of funding, so I hope the Minister will say today what he is going to do post 2020 and whether he is extensively lobbying the Chancellor ahead of his statement to try to address this major problem, because the specialist support that is provided to maintained nurseries is vital if we want to address the specific needs of the children who desperately need that provision.

Maintained nurseries are vital services, and they completely transform lives. I have seen that when visiting nurseries, meeting children and parents across my constituency, and meeting outstanding professionals who work really hard with very little remuneration because they believe in our children and in giving them a good future. Some 64% of maintained nursery schools are in the 30 most deprived areas of England; 63% are graded outstanding by Ofsted because of the quality of education they offer. When Ministers talk about cost savings, they should not use such blunt instruments, which do not take into account the way professionals and families have worked to improve achievement from an early age, creating the building blocks for success in later life.

In those nurseries, admissions policies prioritise children who are in greatest need and provide a high number of places for disadvantaged and SEND children, particularly those with the most complex needs. These children make great progress through the education system, which they would not do otherwise. The average number of available childcare places in areas of disadvantage has fallen from 33 children per 100 in 2016 to just 25 per 100 in 2018. That is a worrying trend, which the Government need to reverse. Across the UK, there are now over 500 fewer Sure Start centres than there were in 2010, so the wider support structure has also crumbled, at a time when families are facing huge pressure, uncertainty and insecurity. That is one area of vital provision that needs protecting.

The child poverty rate in my constituency is the highest in the country, and yet our education system has been transformed over the past 20 years; early years and maintained nurseries have played a critical role in that. We also face funding cuts of 24% from 2010 to 20, and the local authority will have to make a further £58 million-worth of savings because of the national Government cuts. In that context, unfortunately, the local authority can no longer co-finance and meet the shortfall of a number of maintained nurseries in my constituency. I am deeply concerned about that, because it was announced this September that three out of six were to be closed. We simply cannot afford for that to happen, but the local authority no longer has the bandwidth to be able to continue to finance them.

Nurseries such as Overland, Mary Sambrook and John Smith have made huge differences to children’s lives. For example, the Overland children’s centre provides specialist care services for deaf children. Parents are extremely anxious about what is going to happen in the future, and they are particularly concerned about other children who could have benefited from those nurseries but who will no longer be able to.

I hope the Minister will heed the warnings of a cross-party group of more than 70 Members of Parliament, including 12 from his own party, who called on the Government to think again about the funding that is available for this important service. I also hope he will heed the Treasury Committee’s report, which recommended that the Government ensure that the costs that are being passed on through the national minimum wage, pension contributions and business rates are borne by national Government. Otherwise, nurseries will have no option but to charge—some have started to do so, making a mockery of the policy of 30 or 15 hours of free childcare—or, as the Minister is aware, to close.

The Treasury Committee also called on the Government to look closely at why take-up is so low. At the time, it was 90% lower than initially expected. We highlighted the importance of targeting disadvantaged people, because the new arrangements do not seem to be reaching those communities and families.

Cutting back higher quality staff and changing the services that were previously free may undermine the Government’s overarching policy objective of supporting those who live in disadvantaged areas, including constituencies such as mine and those of many other Members of Parliament. I hope the Minister will redouble his efforts to persuade the Chancellor to do more to finance this important sector, which is vital to the future of our children and our country.

Photo of Tracy Brabin Tracy Brabin Shadow Minister (Education) 10:21 am, 10th October 2018

It is an honour to serve under your chairmanship, Mr Gapes. I thank Chris Green for securing this important debate. It has been absolutely fantastic to hear so many contributions from Members across the House.

I pay tribute to the hon. Members for Bolton West and for Rugby (Mark Pawsey), who are obviously listening MPs and are very much connected with their communities. The survey that the hon. Member for Bolton West instigated was a great tool for getting to the nitty-gritty of what is going on in his community. He talked about business rates, about primary schools that cannot get their VAT back when non-school nurseries can, and about ratios, which I am sure the Minister will want to look into. Given the way the world works now, we need flexibility more than ever. The hon. Member for Rugby talked about the stark costs and the shortfall of £1 an hour in his community, and asked how nurseries can keep going with that shortfall.

My hon. Friend Julie Cooper has worked very hard with the maintained nursery sector in her area—in fact, I visited a group of nurseries in her community. She said that they are a lifeline for many families. She made a powerful argument, and she is a massive advocate for her community.

I am so grateful that my hon. Friend Rachael Maskell made a contribution, because she was an early implementer and was at the coalface of the roll-out, so she has seen the effects of the funding shortfall. I am glad that she mentioned Sure Start and SEND provision, which are vital parts of our offer for families. I congratulate her sister, who is working very hard in the sector.

My hon. Friend Barbara Keeley, who is no longer in her place, made a powerful intervention about losing five outstanding nurseries, and she talked about the prospects for SEND children. My hon. Friend Rushanara Ali has done incredible work in her community, where the school for deaf children potentially faces closure. Her work on the Treasury Committee was really helpful a few months ago in helping us to understand the landscape in more detail, and it gave us a granular understanding of the funding shortfall. I congratulate her on her work and on the way she has supported her community. It is a pleasure to follow so many fantastic contributions.

The Minister and I have discussed the financial sustainability of the early years sector many times in the Chambers of this House. Our discussions have focused on the funding levels the Government set for their policies. As hon. Members are aware, Government-funded childcare schemes have become an increasingly large part of early years settings’ incomes in recent years. The biggest single change was arguably the introduction of 30 hours of free childcare per week, which came into effect in September 2017. In many instances, those free extra hours result in some financial support being available for all the childcare hours a family uses in a week. Of course, there is a wider discussion to be had about top-ups and the additional charges placed on those hours, but it is undeniable that, for many working families, financial support is welcome overall. However, the change means that what nurseries and childminders can charge is limited, as a larger proportion of their income comes from an amount set by central Government.

That would not be a problem, however—this is where the Minister and I stop agreeing—if the funding levels set by the Government were not too low. I do not want to ruin the surprise for anyone, but I imagine that the Minister will point to a report by Frontier Economics and to a 2016 National Audit Office report that called the Government’s spending review “thorough and wide-ranging”. I have heard that response many times, and read it in the responses to many written questions. However, I want to push the Minister a bit further today. In the same sentence in which the NAO said that the review was “wide-ranging”, it also stated that the review

“used a variety of sources, including evidence from 2,000 providers and other stakeholders.”

Although the Government did receive about 2,000 provider responses to its call for evidence about delivery costs, they subsequently admitted that, because the providers’ responses

“were often not supported by figures”,

they were

“unable to determine from the responses what providers’
unit costs were”.

I would therefore be grateful if the Minister could confirm the number of providers whose evidence was used in the review. If the number is below 2,000, has the NAO been made aware of that?

The early years sector is in a precarious financial position and is one of the lowest-paid sectors in our economy. I am sure every hon. Member in the Chamber will have visited nurseries in their constituencies and seen the passion, talent and commitment of practitioners. I hope we can agree that the low pay is a scandal. Margins in the sector are always tight, and we see a considerable churn of providers. However, I am extremely concerned by some of the recent research. For example, the Pre-school Learning Alliance survey of more than 1,600 early years practitioners in September found that eight in 10 said that it would have a somewhat or a significantly negative effect on them if their funding rate stayed the same next year. Half of providers have increased their fees because of the 30 hours offer. Four in 10—42%—have introduced or increased charges for additional goods and services, and, incredibly, four in 10 say that there is a chance that they will have to close their setting in the next academic year due to the 30 hours offer and/or underfunding.

That survey is not a one-off. The National Day Nurseries Association unearthed a yearly funding shortfall of £2,166 per three and four-year-old child. That has contributed to a 66% rise in nursery closures over the past 12 months—a loss of a staggering 5,000 places. A Department for Education-commissioned report conducted by Frontier Economics, released last month, found that 25% of providers had moved from making a profit to breaking even or making a loss.

Despite the weight of evidence clearly showing that there is an urgent need for a funding increase for early years policies, the Government remain defiant. Later today, “Save Our Nurseries” campaigners will be outside Parliament, and campaigns are springing up in Salford, Birmingham, Tower Hamlets, Burnley and elsewhere, but for too many there is nothing to be saved. Bright Beginnings in Stockport said that

“the reality is that we can’t provide Outstanding nursery care on the funding provided.”

The Ark Nursery in West Sussex is closing because of a decade of underfunding. Windymiller, in my own constituency, where I grew up, closed its doors a few months ago because of funding pressures. It seems that at least once a week, I hear of another outstanding nursery closing its doors for good.

What is to be done? Well, the Budget is coming up this month, and I wonder whether the Minister could enlighten us as to whether he or the Secretary of State have held conversations with the Chancellor about a funding increase for free childcare. In recent days, a petition calling for a review of how business rates are applied to nurseries has reached 10,000 signatures. Perhaps the Minister could let us know his thoughts on that, and whether he supports the decision in Wales to scrap business rates for nurseries.

Maintained nurseries remain concerned that there has been no commitment to extra funding, considering the extra costs that they incur. With budgets requiring sign-off two years in advance, can the Minister tell us when a decision will be made? As the Government occupy a larger role in the funding of nurseries, they must also face up to their responsibility to nurture the sector. If we continue on our current trajectory, we will see a growing recruitment crisis and an exodus of experienced and outstanding providers. Nobody wants that. I look forward to hearing what plans the Minister has to halt this growing problem.

Photo of Nadhim Zahawi Nadhim Zahawi The Parliamentary Under-Secretary of State for Education 10:31 am, 10th October 2018

It is a pleasure to serve under your chairmanship, Mr Gapes. I congratulate my hon. Friend Chris Green on a very thoughtful speech and on securing this important debate. We have heard some important contributions from both sides of the House, and I am genuinely grateful for the opportunity to set out both the Government’s position on childcare support and our priority of ensuring that hard-working parents are able to access high-quality provision.

Evidence suggests that high-quality childcare supports children’s development, as many colleagues have said, and prepares young children for school. Affordable and convenient childcare gives parents the ability to balance work and family life, allowing them to enjoy the benefits of a job, safe in the knowledge that their children are in good hands. That is why—I am very proud of this fact—this Government are investing more in childcare than any other Government. By 2019-20, we will be spending around £6 billion a year on childcare support. That includes an extra £1 billion a year to deliver 30 hours of free childcare and pay our higher funding rates.

The Secretary of State and I announced that we have committed a further £30 million of capital funding to build more school-based nursery places in the most deprived areas. That supports our commitment to social mobility, ensuring that we provide more quality places for those that will benefit the most. We are also providing additional funding, worth around £60 million per year, to support maintained nursery schools at least until 2019-20. Time permitting, I will return to maintained nurseries in response to some of the comments from colleagues.

All three and four-year-olds, along with disadvantaged two-year-olds, are able to access 15 hours a week of free early education. We have just celebrated the first year since doubling the childcare entitlement for working parents of three and four-year-olds to 30 hours a week. The childcare service, which is the online application for 30 hours of free childcare, along with the information available through the Childcare Choices website and the childcare calculator, have helped 340,000 children to take advantage of more high-quality childcare and put savings of up to £5,000 back in their parents’ pockets. That is something to be celebrated.

The recent independent evaluation of the 30 hours free childcare found that over a quarter of parents reported that they had increased their working hours, and 15% of parents said they would not be working without the extended hours. One parent interviewed for the evaluation also noted the wider benefits, which sometimes go unnoticed, of being able to work more:

“By doing four days now instead of three...my company looks at my development and progression in a way that they wouldn’t if I was only doing three days”.

That is great news which genuinely demonstrates the real and valuable impact of 30 hours. At a celebration, I met one parent who came up to me and said, “I just want to thank you for this. We are not the poorest family in the country, but we are certainly not rich. The 30 hours have allowed my wife to retrain in accountancy and she has got a job in that sector.” Those are real lives that are being impacted by a policy that is truly delivering on the ground.

Photo of Nadhim Zahawi Nadhim Zahawi The Parliamentary Under-Secretary of State for Education

I have so many things to say. The hon. Lady made a thoughtful speech, and I will try to get through as many of the questions asked by her and other colleagues as possible. I hope she will forgive me for not giving way.

In this research, parents also reported wider benefits for their families: a fantastic 86% thought that their child was better prepared for school, and 79% felt that their family’s quality of life had improved. The recently published “Study of Early Education and Development” report evidenced the beneficial impacts of high-quality early education for all children aged two to four on both cognitive and socio-emotional development at the age of four.

The introduction of 30 hours has been a large- scale transformational programme, and change can be challenging for everyone. But we have seen tens of thousands of providers respond magnificently—I want to thank them for that—because of their ongoing commitment to helping families. The evaluation of 30 hours found that three quarters of providers were willing and able to deliver the extended hours, with no negative impacts on their provision or on sufficiency of childcare places. As we have heard from colleagues’ local experiences, the childcare market in England consists of a diverse range of provider types, allowing parents to have choice over their childcare provider. The supply of childcare in England is generally of high quality, with strong indications that existing supply is able to meet parental demand for Government-funded entitlements.

Nearly 80,000 private childcare providers were registered with Ofsted in March this year, and we know that nearly 10,000 school-based providers offer early years childcare. While there are, of course, sad examples of providers closing—as some hon. Members have shared—there is no evidence of widespread closures in the non-domestic childcare market. [Interruption.] Well, let me share the Ofsted data if hon. Members do not believe me. The Ofsted data published in June 2018 showed that the number of childcare places has remained stable since 2012. It is normal for providers to join and leave the Ofsted register, as it is a private market, and it can happen for a variety of reasons.

Most significantly, we have not heard via local authorities, from hon. Members or in the media of eligible parents being unable to find a 30-hours place or a place for any of the free entitlements.

Photo of Tracy Brabin Tracy Brabin Shadow Minister (Education)

I am so grateful to the Minister for giving way. He says that there is no evidence of parents not being able to access the 30 hours. I have spoken to providers and nursery owners who say that they are not offering 30 hours at all.

Photo of Nadhim Zahawi Nadhim Zahawi The Parliamentary Under-Secretary of State for Education

The hon. Lady makes an important point. It is up to providers whether they want to offer the 30 hours or not. That is a choice for them to make, but we have seen no evidence of parents being unable to find a place.

As important as the availability of a place is, I am also pleased, and in many ways delighted, that the quality of childcare providers remains high, with more than nine in 10 rated good or outstanding by Ofsted. In January 2018, over 1.2 million children under the age of five were receiving funded early education in settings rated good or outstanding by Ofsted.

We continue to support growth in the childcare sector. We have already invested £100 million in a capital fund to create extra high-quality childcare places in all provider types. We continue to work with councils to support the providers who deliver our free entitlements, through initiatives such as the £7.7-million delivery support fund and through our delivery contractor, Childcare Works.

I was not going to mention the NAO report or Frontier Economics, but I am pleased that the shadow Minister commended the thorough and wide-ranging review that the NAO report mentions—we will say a bit more about that later. Over the next year, Childcare Works will continue to work with local authorities to raise awareness and to support childcare providers to deliver the Government’s childcare entitlements, including the 30-hours offer.

The Government have introduced a range of business rate reforms and measures, which will be worth more than £10 billion by 2023—my hon. Friend the Member for Bolton West mentioned the issues to do with business rates—such as raising the rateable value threshold for 100% relief from £6,000 to £12,000, which means that about 655,000 small businesses pay no business rates at all. A package of support worth £435 million over five years is available to those that have had a large hike in business rates. We are also increasing the frequency of property revaluations from every five to every three years following the next revaluation, to ensure that bills more accurately reflect property values.

We have provided powers under the Localism Act 2011 to enable local authorities to offer business rate discounts as they see fit. In 2015, my predecessor and the local government Minister asked officials to write to all councils to encourage them to use those powers to support access to local high-quality childcare provision. So far, I am aware of only two councils that have chosen to do that. Members could talk to their local authorities about joining in to do that.

On the work on costs—I want to address the issue of costs—funding is inevitably and understandably high on our agenda during any discussion about free early education entitlements. My Department continues to pay close attention to the matter. I do not want colleagues to go away with the impression that this Minister thinks funding is not a challenge. We are, however, clear that getting the funding right is critical to the successful delivery of free entitlements.

Photo of Nadhim Zahawi Nadhim Zahawi The Parliamentary Under-Secretary of State for Education

I am coming on to something the hon. Lady raised, but I shall give way happily if I have time at the end.

This year, we shall be enhancing our annual survey of childcare and early years providers with more detailed research. Again, I commend my hon. Friend the Member for Bolton West on his research, and I am interested in getting deep into the evidence on provider finances and childcare fees for two to four-year-olds. We have also commissioned independent research that involved site visits to a representative sample of early years providers to provide us with robust, up-to-date evidence on the costs of delivering childcare, including operating costs such as business rates. That is part of our ongoing monitoring of 30-hours implementation, and we shall consider the next steps once we have the findings on costs.

I shall now turn to some of the comments made by colleagues. My hon. Friend the Member for Bolton West mentioned VAT. Under European law, registered childcare providers deliver an exempt service, which means that they do not charge VAT on their services. The exemption is obviously designed to ensure that tax does not fall on individuals using welfare services, such as nursery services. However, goods and services purchased by the providers are subject to VAT, which causes understandable frustrations in the sector, but the rules cannot be changed within the existing legal framework. There may be opportunities to make changes to the VAT system in the future, but our rights and obligations remain unchanged until negotiations on our departure from the European Union are complete.

On the point my hon. Friend and many colleagues made about nurseries going out of business, the Ofsted data in itself is interesting. It shows that the number of childcare places available has remained stable since 2012. I also remind hon. Members that childcare providers do not have to offer the free 30 hours—that is entirely up to them—although, since the roll-out of 30 hours of free childcare, we have seen a sizeable majority of providers increasing the number of free hours available to parents, with no evidence of an impact on their funding.[This section has been corrected on 16 October 2018, column 8MC — read correction]

My hon. Friend Mark Pawsey and other Members mentioned the issue of nurseries charging parents. The Government have been clear that the funding is intended to deliver free high-quality, flexible childcare. It is not intended to cover the costs of meals, consumables or additional services, so providers can charge parents for such things. However, parents must not be required to pay any fee as a condition of taking up a place. Our guidelines state that providers should ensure that their charges are clear to enable parents to make an informed choice.

A number of colleagues mentioned financial support for parents in connection with disadvantage. I remind hon. Members that in addition to the investment that we are making, under universal credit working parents may claim back up to 85% of eligible childcare costs, compared with 70% of costs covered under the outgoing tax credits system.

Rushanara Ali raised another issue to do with disadvantage, pointing out that two-year-olds cannot access the disability access fund, the early years pupil premium or the SEN inclusion fund. In 2017, we increased the funding rates for all disadvantaged two-year-olds by 7%, and we pay a higher rate for them because we recognise the higher costs associated with two-year-olds. The two-year-old funding is, by its nature, already targeted to the disadvantaged in that age group.

Photo of Nadhim Zahawi Nadhim Zahawi The Parliamentary Under-Secretary of State for Education

I shall give way later if I have time. The hon. Lady and Julie Cooper mentioned maintained nurseries. The Secretary of State and I have both seen the incredible work that maintained nurseries deliver for their communities, and we have made £60 million a year of supplementary funding available at least until 2020. My message to local authorities is: do not take premature decisions on maintained nurseries. Many colleagues have made representations to me about the quality of maintained nurseries in their constituencies.

Barbara Keeley, who is no longer present, spoke about nurseries in Salford being forced to close as a result of funding rules. I met the hon. Lady and other colleagues to discuss the matter, but it is for the council to manage its local markets and to ensure appropriate provision for children with special educational need and/or disability. Councils may request exemption from the high pass-through rule, but Salford chose not to do that. My officials continue to discuss the matter with council officers. I am pleased that there are no 30-hour sufficiency issues in Salford.

Rachael Maskell made a strong speech about the early years workforce and professional development. As she said, staff training and development is associated with quality, and I have announced that we are investing £20 million in professional development and training for practitioners in disadvantaged areas of our country.

The attainment gap was mentioned by the hon. Members for York Central and for Burnley. I would say that we were in agreement. More than a quarter of children finished their reception year still without the early communication and reading skills that they need to thrive. The Government have ambitious plans to halve that number over the next 10 years. The Department is working closely with the sector to deliver on our commitment to reform the early years foundation stage profile. We know that those gaps can emerge much earlier in a child’s life, as the hon. Member for York Central rightly indicated, well before the child enters the reception year. That is why we have recently launched a capital bidding round of £30 million, inviting leading schools to come forward with projects to create new high-quality nursery places for two, three and four-year-olds, which I spoke about earlier.

The hon. Member for York Central also spoke about the need to put the right investment in place for children with SEND. A high-needs funding system provides funding to local authorities for children and young people with complex special educational needs, from age zero to 25. The total high-needs block of funding now stands at a record high of almost £6 billion in England. Every local authority will attract at least a 1% increase in core formula funding per head in 2019-20 compared with 2017-18. The support is there for children with SEND, and our disability access fund is worth £615 per child. Local authorities should also establish an SEN inclusion fund. I think I shall end there, unless colleagues wish to intervene.

Photo of Rachael Maskell Rachael Maskell Shadow Minister (Transport)

The Minister was asked about funding. He has heard from Members across the Chamber that funding does not match need. Will he set out the discussions he has had with the Treasury ahead of the Budget to ensure that we have the right amount of funding for nurseries? Can we expect an announcement on 29 October?

Photo of Nadhim Zahawi Nadhim Zahawi The Parliamentary Under-Secretary of State for Education

I hope that I conveyed to the hon. Lady, even if I did not convince her, that we are looking at funding very closely—a real deep dive. We have included our own additional survey questions for providers and have taken a representative sample of providers so that we can begin to understand it. My hon. Friends the Members for Rugby and for Bolton West and Opposition Members have offered evidence that we will look at very closely. I assure the hon. Lady that we are doing the work to ensure that there is continued sufficiency and that providers are able to deliver the excellent service that many thousands of them deliver.

I thank my hon. Friend the Member for Bolton West for securing this debate and for his thoughtful contributions.

Photo of Nadhim Zahawi Nadhim Zahawi The Parliamentary Under-Secretary of State for Education

I think I have enough time, although my hon. Friend is allowed a few minutes to conclude the debate.

Photo of Rushanara Ali Rushanara Ali Labour, Bethnal Green and Bow

I was particularly heartened by the Minister saying that local authorities should not make premature decisions about closing maintained nurseries. Will he say a little more about that? If he cannot now, will he write to me? My nurseries face imminent closure, so local authorities need that assurance to find alternatives. They are stuck between a rock and a hard place. I really hope that he appreciates just how serious this matter is and that the Government should not keep passing the buck to local authorities. To say that it is “sad” that local authorities have to do that is not good enough for families. I hope he takes that message to the Treasury in his campaigning, in which we will support him.

Photo of Nadhim Zahawi Nadhim Zahawi The Parliamentary Under-Secretary of State for Education

I repeat, as I have done many times, that local government bodies—I hope many will at least read the transcript of this very good debate—should not make premature decisions on maintained nurseries at this stage. We have a spending review coming. The Secretary of State and I have been around the country looking at the great work that maintained nurseries deliver to the most disadvantaged parents in our country. I am happy to write to the hon. Lady to repeat that message so that she may share it with her local authority.

I am grateful for your patience, Mr Gapes, and to colleagues for their contributions.

Photo of Chris Green Chris Green Conservative, Bolton West 10:53 am, 10th October 2018

From London to York, stopping at Rugby, Salford and Burnley along the way, there has been broad consensus, captured by Tracy Brabin, that there is increasing pressure on the system that is challenging the sustainability of the nursery sector. Some nurseries have closed; in my constituency others feel under threat and are eating into their reserves. I welcome the Minister’s comments; I know he will take away our concerns. I was surprised there was a Brexit angle in this debate—it seems to get everywhere. I hope he will take every opportunity with the Chancellor in the run-up to the Budget.

Question put and agreed to.

Resolved,

That this House
has considered the sustainability of the nursery sector.

Sitting suspended.