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Early years providers face financial challenge after pandemic, IFS warns

By Rachel Lawlertoddler playing childcare IFS

The coronavirus pandemic has left many childcare providers at risk of closure, according to a new report from the Institute for Fiscal Studies (IFS).

The IFS says that losing income from parent fees would have put a quarter of private-sector settings at risk of closure in the lockdown period, with less than £4 of income for every £5 of costs for the sector.

Low demand for places
Even after early years providers were able to reopen to all children from 1 June onwards, many providers continue to see low attendance. Demand for childcare places remained 70% lower than before the outbreak.

The IFS estimates that for every £1 of parent fee income lost, providers were given a median of just 55p in furlough payments.

Childminders were particularly hard-hit by the crisis. The IFS estimates that even if all childminders received self-employment grants, the loss of fee income would mean that 30% of childminders earn less than £4 of income for every £5 in costs.

The IFS warns that there is a risk that many providers will close, creating a shortage of spaces once demand returns to more normal levels.

Christine Farquharson, senior research economist at the IFS, said: “Childcare closures during the lockdown saw providers’ incomes take a big hit. While government support cushioned the blow, especially for settings mostly reliant on public income, we estimate that half of childcare providers were at risk of earning less than £4 of income for every £5 of cost during the lockdown if they took in no fees from parents. The lockdown hit providers of all sizes and in all areas, but childminders – who entered the crisis with weaker finances on average – were more exposed than other types of settings.”

Neil Leitch, chief executive of the Alliance, commented: "We welcome these findings from the IFS which reinforce what we have long warned about the dire financial state of the childcare sector in England.

"As the report rightly states, nurseries, pre-schools and childminders were already struggling long before the pandemic as a result of sustained government underfunding. Now with the additional challenge of significant falls in parent fee income as a result of the coronavirus outbreak, many childcare providers are unsure if they will be able to survive for much longer - our own research from earlier this year found that one in four feared closure within twelve months.

"Despite the overwhelming evidence that urgent action is needed, the government has so far failed to provide the transitional funding this sector desperately needs to remain sustainable in the short term, nor has it been willing to commit to the investment needed to ensure that providers can stay viable in the long term.

"If the government is serious about re-booting the economy, it needs a sustainable early years sector to ensure that parents have access to childcare they need in order to work. We urge the government to listen to the experts, look at the evidence and accept that urgent action is needed if this vital sector is going to survive the next few months and beyond."

Find out more
Read the full IFS report
Business advice for early years providers - FAQs
Operating during the lockdown and beyond - advice for providers