IFS warns of ‘big financial problems’ for many childcare providers

Financial experts have warned that many childcare providers will face a tough time keeping their doors open as the lockdown ends.

The study by the Institute for Fiscal Studies (IFS) warns that by the start of summer holidays demand for childcare places remained 70% below pre-crisis levels.

It adds here is a risk that some childcare providers will close, creating a shortage of places once demand returns to ‘normal’ levels.

According to the study, a total loss of income from parent fees would have put a quarter of private-sector nurseries at risk of running a significant deficit during lockdown, with less than £4 of income for every £5 of costs.

For providers with income from parent fees, support through the furlough scheme and self-employment grants was a ‘significant help but provided far from full protection’.

The IFS estimate that the average furlough payment was worth 55p for every £1 of lost fee income.

‘Childcare closures during the lockdown saw providers’ incomes take a big hit,’ said IFS senior research economist, Christine Farquharson.

‘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.’

The chief executive of the Early Years Alliance, Neil Leitch said the report ‘rightly states’ that nurseries, pre-schools and childminders were already struggling long before the pandemic.

‘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,’ said Mr Leitch.

‘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.’

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