Free childcare scheme 'closing' nurseries, education charity says

From the BBC:

A scheme offering 30 hours of free childcare a week has had a financial impact on providers, a charity says.

It’s not a charity, it’s a trade body/lobbying group, but their point stands.

The government pays a national average of £4.98 per hour for places to local authorities, of which a minimum of 94% is passed on to providers.

As background, until a year ago, parents received a subsidy for 15 hours ‘free’ nursery care but at a higher hourly rate. Of all the various overlapping schemes for subsidising private childcare, this was the best, being universal, non-means tested and with a minimum of bureaucracy. (Even better/cheaper would be more pre-school places at local state primary schools, but that’s a separate topic).

The [Pre-School Learning Alliance] charity surveyed 8,000 nurseries and childminder firms between 17 July and 23 August.

It received answers from 1,662 providers and found 46% of them felt the scheme “had a negative financial impact on their business”, while two-thirds said funding for child places did not “cover the full hourly cost of delivering the places”…

It doesn’t take a rocket scientist to work out that price controls (which is what this boils down to) will increase demand and reduce supply (unless it simply prevents rent-seeking, in which case the impact on supply is negligible, but that does not appear to be the case here).

In a statement, the DfE said it had provided “£1bn extra funding a year to deliver all of this government’s free childcare offers… We continue to monitor delivery costs and we have commissioned new research to provide further information on the costs around childcare,” it added.

The DfE said parents were saving* up to £5,000 a year on childcare costs.

That “saving” consists of two things – the amount by which nurseries’ incomes are squeezed and the value of the subsidy, which those working parents are partly paying for through their taxes anyway.