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Government should cover 100% of nursery staff wages to protect the childcare sector from collapse

Government intervention in childcare through national fund could avoid mass redundancies in the struggling sector

The government should protect the childcare sector during the Covid-19 crisis by covering 100% of nursery staff wages through a Childcare Infrastructure Fund, according to a new report from the New Economics Foundation (NEF). The report finds that without government intervention the childcare sector will face mass redundancies.

The report recommends that the government replace the 30 free hours of childcare programme and the childcare sector’s share of the furlough scheme, and instead distribute the funds to providers like nurseries to stop sectoral collapse. Nurseries would use this funding to pay staff wages and raise them to the Real Living Wage where necessary, in addition to meeting overhead costs.

The report argues that intervention is needed as the lack of government support for childcare during lockdown has pushed childcare providers like nurseries to breaking point. Even before the Covid-19 outbreak, historic underfunding has left 17% of providers in England’s poorest areas facing closure. Now, a quarter of all Ofsted-registered providers fear closure within a year, according to the Early Years Alliance. As the job retention scheme winds up, and nurseries have currently only filled 38% of their capacity due to distancing restrictions and reduced demand from parents, childcare providers are facing increasing financial pressure.

The report outlines a proposal for the creation of a new Childcare Infrastructure Fund, which would consist of:

  • A direct payment to all Ofsted-registered childcare providers to cover all staff salaries (including raising salaries to the Real Living Wage where needed) plus other essential overheads.
  • Free childcare to all parents who are key workers, vulnerable children, or who are unable to work from home. Providers would also be obliged to prevent any staff redundancies.
  • The fund would replace the government’s payment for 30 hours free childcare, and payments to childcare providers through the job retention scheme and self-employed income support scheme.

Currently, the government is continuing to pay the free hours entitlement to childcare providers – but this only accounts for a proportion of a nursery’s income. Providers were not allowed to furlough staff for any hours paid for by the government’s free hours entitlement, putting nurseries under financial pressure. Last Friday the government announced a billion-pound Covid catch-up plan” to support childcare after the crisis but did not include any measures to support the early years sector.

The report estimates that the total cost of Childcare Infrastructure Fund would be approximately £634 million per month, or £1.9 billion for three months. However, after recycling funding already spent on childcare provision from other sources (for example the free hours programme and the job retention scheme) the net cost of the Childcare Infrastructure Fund would be approximately £236 million for one month or £728 million for three months. In the short term, NEF proposes that these costs a met out of small increases in government borrowing, alongside other existing emergency response measures.

Lucie Stephens, head of co-production at the New Economics Foundation, said:

Spending on quality, accessible childcare is an investment in essential social infrastructure, with long-term benefits for the economy and society. If the government continues to ignore the financial effects facing the sector, it will inevitably collapse. Supporting the childcare sector is possible: in Ireland, Australia and Canada, mass redundancies have been avoided because governments have intervened to underwrite childcare fees through the crisis in order to protect the sector. As temporary measure, the Childcare Infrastructure Fund will protect providers and the workforce, buying us time to grapple with the bigger changes the sector requires to meet the needs of all families.”


Margaret Welsh /​ /​07776340574


The New Economics Foundation is a charitable think tank. We are wholly independent of political parties and committed to being transparent about how we are funded.

The Childcare Infrastructure Fund (CIF) would be administered by the Department for Education, with local government acting as an intermediary between the Department and local childcare providers. The CIF would be administered for an initial three months, with the option to extend the scheme on a rolling three-month basis.

The gross cost of the CIF would be approximately £634 million per month, or £1.9 billion for three months, for nurseries and childminders combined. Nurseries alone would cost £528 million. After making deductions for estimated payments already made to childcare providers under the free hours programme, the CJRS, and the SEIPS, we estimate that the net cost of the CIF would be approximately £236 million in its first month (if introduced in July 2020) or £728 million for three months. The report proposes that these costs are met through further bond issuance by government, with the Bank of England continuing to purchase bonds on secondary markets as appropriate in order to keep the costs of public borrowing at all-time lows.

Costing estimates for the CIF were calculated prior to the government releasing new details of the unwinding of the furlough scheme, but we do not believe this will have a major impact on the figures.

Statistic that 17% of England’s childcare providers are facing closure is from Nursery World (2019) https://​www​.nurs​ery​world​.co​.uk/​n​e​w​s​/​a​r​t​i​c​l​e​/​n​u​r​s​e​r​i​e​s​-​i​n​-​p​o​o​r​-​a​r​e​a​s​-​f​a​c​i​n​g​-​c​l​osure

Statistic that a quarter of all childcare providers fear closure within a year is from the Early Years Alliance (2020) https://​www​.eyal​liance​.org​.uk/​n​e​w​s​/​2​0​2​0​/​0​5​/​q​u​a​r​t​e​r​-​c​h​i​l​d​c​a​r​e​-​p​r​o​v​i​d​e​r​s​-​f​e​a​r​-​c​l​o​s​u​r​e​-​w​i​t​h​i​n​-year

Figure showing that nurseries are operating at 38% capacity is from EY Matters (2020) https://​www​.eymat​ters​.co​.uk/​c​e​e​d​a​-​c​o​v​i​d​-​1​9​-​b​u​l​l​e​t​i​n​-​1​-​j​u​n​e​-​7​-​june/

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