Financial Sustainability Health Check of the Childcare Sector in Scotland

Introduction

1. The childcare sector in Scotland delivers a diverse and vital range of provision to children of all ages. From caring for our youngest children, to the delivery of funded early learning and childcare (ELC) for eligible 2 year olds and all 3 and 4 year olds, through to provision for school age children which happens before and after school and during the holidays. The providers offering these services include childminders, nurseries, after school clubs, organised activities sector and playgroups.

2. The Scottish Government is committed to supporting this diversity of provision and to ensuring a sustainable and thriving childcare sector.

3. As well as supporting children’s development, a strong and sustainable childcare sector is also a key part of Scotland’s economic infrastructure. The pandemic, in particular, has highlighted the importance of the whole childcare sector, including school age childcare, to families across Scotland. Flexible, accessible and affordable childcare services are a vital part of our national economic infrastructure, enabling parents and carers to work, study or undertake training.

4. Many parts of the sector operate under a mixed economy model. This reflects a range of providers from the public, private and third sector but also that many providers receive income directly from their local authority in order to deliver funded ELC. For example, as of September 2022 it is estimated that 56.5% of registered private and third sector day care of children services delivered funded ELC.

5. There have been a number of developments in recent years, which have impacted the sector including the global COVID-19 pandemic and the ongoing costs crisis. There have also been substantial policy changes, and investment in the sector, in particular the expansion of funded ELC to 1140 hours. Alongside this, the sector will be impacted by demographic changes, with gradual declines in the number of children in each age group each year (and which is projected to continue). It is important that we understand the impact of these developments on the structure of the childcare sector and on the sustainability of providers, by collecting robust evidence from providers themselves.

6. This ensures that both national and local policy is informed by up to date evidence about the health of the sector.

7. In 2021 the Financial Sustainability Health Check collected evidence on the sustainability of the childcare sector, and in particular on the impact of COVID-19.

The Health Check provided an overview of the challenges facing the sector and highlighted that whilst all parts of the childcare sector have been impacted by the pandemic to some extent, the nature and scale of these impacts has varied across different types of services.

8. The 2021 Financial Sustainability Health Check has been a vital source of evidence and has helped the Scottish Government to tailor support for childcare providers. However, since Summer 2021 there have been substantial economic impacts as the result of the costs crisis, workforce pressures and the lasting impacts of the pandemic.

9. This update provides evidence as to how these events are impacting on the childcare sector, as well as allowing for analysis of any changes in underlying trends in the sector. This includes understanding where there may be disproportionate impacts across different types of providers.

10. It is important to note that due to the relatively low response rate to the provider surveys (which were lower than the response rates to the 2021 Health Check surveys) informing this work, the data collected through the surveys might not be representative of the Scottish childcare sector as a whole. Therefore, caution should be taken when interpreting the results from these surveys, and to consider the range of evidence presented in this report.

11. This report presents the key findings from this exercise and sets out the further action that will be taken to ensure a sustainable childcare sector in Scotland. Detailed supporting information is set out in the separate Analysis and Evidence report. As with the previous Health Check, the findings from this report will be used to inform future policy development.

12. A sustainable childcare sector in Scotland will also be vital to supporting the delivery of our new policy commitments on childcare, particularly through expanding high quality, funded early learning and childcare to 1 and 2 year olds and to progressing work to build a targeted system of school age childcare.