Childcare providers face financial challenges from lockdown

It is the first week back to school for many children across England. But, what about children under school-age?

The stability of childcare provision is vital to allow parents to continue to work, whether in the office or working from home. However, with many childcare providers having weak finances pre-Covid, the pandemic has only further exacerbated the financial challenges within the sector, particular for those providers who rely on fee income.  

Dr Gillian Paull, Senior Associate at Frontier Economics, has been working with a team of researchers from the Institute for Fiscal Studies, the University of Birmingham, Coram Family and Childcare and the University of Surrey to analyse how childcare providers’ finances might have been affected by the lockdown, and how they may look in the future.

Some of the key findings of the research include:

  • Continued funding for the free entitlement during the lockdown means that providers that rely mostly on public funding have so far seen their income largely protected
  • Despite support through the furlough and self-employment schemes, it is estimated that almost three quarters of providers entirely reliant on income from parent fees may have faced a significant deficit if all income from parents dried up during lockdown
  • Many childminders went into the crisis in a weak financial position and are likely to have been particularly hard-hit. Even if it is assumed that all childminders were eligible for the self-employment grant scheme, it is estimated that one in three could have been tipped into running a significant deficit during the lockdown
  • The estimates suggest that the risk of running a significant deficit did not substantially increase in the lockdown for smaller providers, those with more highly qualified staff or those from more deprived areas.

The research also explores the case for more support from the government for the childcare market, concluding that:

  • Before the crisis, the childcare market featured significant turnover, suggesting that much of the market could potentially adjust to rises and falls in demand without government support. However, those heavily reliant on fee income might need extra support.
  • Adjusting the free entitlement funding rate is not an efficient way to target support to help address the challenges of lockdown because the worst affected providers were those mostly funded by private fees.

To read the detailed analysis, click here to read more and access the report.

Challenges for the childcare market