Government funding for childcare in England is being undercut by “damaging” business rate burdens that are pushing nurseries into making a loss, according to an organisation representing the sector.
The average nursery will this year pay £13,267 in business rates — equivalent to 2,878 hours of government funding, or what nurseries receive annually for five children, according to a survey of members of the National Day Nurseries Association revealed.
England’s childcare sector is in crisis, with parents hit by unaffordable fees, nurseries unable to make ends meet, and low-paid staff leaving for higher-paying jobs. The NDNA called on the government to scrap business rates for nurseries as a step towards more sustainable funding.
Nearly two-thirds of nurseries surveyed said that money spent on business rates would otherwise be used to increase staff salaries, while 40 per cent said it would be used to reduce costs for parents.
“Business rates are a huge cost to the sector,” said Karen Simpkin, who runs Sunflower Children’s Centre in Sheffield. She pays £10,600 per year, the equivalent of 2,340 funded hours, in business rates.
“The local authority gives the funding with one hand, and we move it across to the business rates department,” she remarked, adding that nurseries were forced to charge parents more as a result.
Government figures showed private providers ran 45 per cent of England’s nursery places last year. They are partly funded by government support of a minimum £4.61 per hour per child, for 15 hours a week for every three- and four-year-old, and 30 hours for children with working parents.
The NDNA’s figures, based on responses from a sample of 782 nurseries, suggest the equivalent of universal government funding for five children was being returned to local authorities in business rates.
The taxes are based on the rental value of a company’s property at a rate linked to inflation, but charity childcare providers are given a large discount. During the pandemic, nurseries and other businesses were given relief from rates, while in Scotland and Wales nurseries are exempt.
Purnima Tanuku, NDNA’s chief executive, called business rates “an unfair tax” that had a “damaging impact”.
“During a cost of living crisis it makes no sense to hit struggling nurseries with more than £13,000 per setting of extra costs that push businesses into making a loss,” she said. “Abolishing business rates for nurseries could mitigate rising fees for parents, increase pay for staff and just make them a little more sustainable.”
Neil Leitch, chief executive of the Early Years Alliance, another sector body, said removing business rates was not a “silver bullet” but would give stretched providers “much needed breathing space”.
Although local authorities administer business rates, the Local Government Association said most reliefs were decided by central government.
“Councils could do much more to support small businesses with the freedom and finance to set business rates and reliefs locally,” it said.
The Treasury said it recognised rising costs but its priority was to “bring down inflation”. It said its business rates review had led to almost £7bn in support to reduce the burden of rates over the next five years.
“We have already committed to improving parents’ access to affordable, flexible childcare and are currently exploring a wide range of options to do this,” it said.