Last reviewed 11 September 2020

A new report by the Institute for Fiscal Studies highlights the extent of the financial pressures faced by childcare providers in England as a result of the pandemic.

The research, funded by the Nuffield Foundation, analyses how childcare providers’ finances are likely to have been affected by the lockdown, and how they might look going forward.

The report finds that a total loss of income from parent fees 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. This is more than double the number of providers that were running a significant deficit prior to the pandemic and is despite government support such as the furlough and self-employment schemes.

Although childcare settings were allowed to open to all children from the start of June, by the start of the summer holidays demand for childcare places remained 70% below pre-crisis levels. The report warns that there is a risk that some childcare providers will be forced to close, creating a shortage of places once demand returns to “normal” levels.

The report also examines the case for government support for the childcare market, and discusses potential interventions.

Dr Claire Crawford, reader in economics at the University of Birmingham and Research Fellow at the IFS, said:

“Even before the crisis, almost three in ten childcare settings were running a significant deficit, and there was an ongoing debate about whether the funding rate for free entitlement places was sufficient to cover providers’ costs. By squeezing income from parent fees, Covid-19 has magnified these concerns.”

“However, our research shows that the providers most at risk of going into significant deficit – and hence potentially most at risk of exiting the market – are those that do not rely on public funding. While the Government might have good reason to prioritise supporting providers of free childcare hours, doing so may not be the best way to secure the capacity provided by otherwise viable businesses that tipped into a temporary deficit as a result of the pandemic.”

The full report is available here.