Financial Sustainability Health Check of the Childcare Sector in Scotland

Easing restrictions in childcare settings

18. On 17 March 2022 we published streamlined and simplified guidance for all registered early learning, school age childcare and childminder services, which brought an end to restrictions on contacts within settings, the use of ‘bubbles’, limitations on day trips, and allowed parents and visitors back into settings.

19. These changes took effect from 18 April 2022 and followed the advice by the Advisory Sub-Group on Education and Children’s Issues, that it would be appropriate to phase in routine measures in ELC settings in step with changes in the wider society.

20. A small number of routine protective measures remained in place, including the promotion of vaccination, self-isolation, ventilation and cleaning regimes.

Costs crisis and wider policy developments

21. Despite removing restrictions on their operations in April 2022, childcare services, like all other sectors, have been subject to substantial economic challenges as the result of the costs crisis, labour market pressures, and continuing impacts from the pandemic, including:

• High general levels of inflation (including rapid increases in food prices)
• The large increases in energy prices
• Pressure to increase wages to prevent real terms falls in earnings
• Household budgets becoming increasingly constrained, impacting on families’ ability to pay for non-funded childcare.

22. We have taken a number of policy actions to address these challenges and to support a sustainable childcare sector.

23. We have confirmed that the Nursery Rates Relief Scheme will continue beyond the currently legislated end date of 30 June 2023. The Scheme provides 100 per cent relief on Non-Domestic Rates to eligible day nurseries (subject to subsidy control rules). The Scottish Government has completed an evaluation of the relief, which has demonstrated the benefits of this support, worth an estimated £9.6 million, to eligible nurseries, and the children and families who use these services.

24. We have been also progressing the actions set out in the previous Financial Sustainability Health Check, including:

• Funding pilot programmes of targeted Business Gateway support to enable childcare providers to access tailored, specialist advice on strengthening and diversifying their businesses.
• Establishing a real Living Wage and Fair Work Implementation Group in 2022, to explore implementation challenges and potential solutions to help all childcare providers become real living wage employers.
• Working with COSLA and Improvement Service to deliver a programme of actions to strengthen the process for setting sustainable rates in 2022-23. This has included updating and publishing with COSLA a joint guidance to support local authorities to set sustainable rates for August 2022; dedicated support from the Improvement Service to local authorities to inform the rate setting process; and providing funding to COSLA and local authorities to commission Ipsos Mori to undertake an independent cost collection exercise to improve the evidence on costs of delivery that local authorities could draw on.
• Establishing a new Childcare Sector Representation and Sustainability Fund (CSRSF). The Fund is making up to £500,000 available in both 2023-24 and 2024-25 to support eligible childcare sector representative bodies to deliver their representative functions and to enable them to strengthen their long-term sustainability.
• Progressing work on the actions set out in Our Commitment to Childminding plan and monitoring progress through the Childcare Sector Working Group.

25. Alongside updating the Financial Sustainability Health Check, the Scottish Government has been undertaking with COSLA a joint review of the process for setting sustainable rates in 2022-23. As part of this exercise, there were a number of in-depth discussions with private, third and childminding sector funded ELC providers to feedback on the rates setting process. Some of the points raised at those meetings by providers around their financial sustainability have also fed into this Health Check update.

26. The Scottish Government remains committed to ensuring that providers in the private, third and childminding sector views are heard and reflected in national policy.

To that end, we have established a new National Childcare Providers Forum to create a new space for strategic policy discussion between national partners and childcare providers from across the sectoral landscape, including both early learning and childcare and school age childcare providers, on a number of key challenges for the sector. The Forum met for the first time on 1 March 2023 and most recently on 15 June 2023. This builds on the work of the previous ELC Partnership Forum, which previously held meetings across Scotland to strengthen relationships between providers and local authorities and to consider issues relating to the delivery of the 1140 hours expansion.

27. In addition, we established the Childcare Sector Working Group in 2020 to create a forum to discuss, develop and improve policy with sector representatives of the private, third and childminding sectors.

28. The new Minister for Children, Young People and Keeping the Promise also hosted a round table with childcare sector representative organisations on Tuesday 18 April, in order to hear directly about the current challenges faces the sector relating to the costs crisis, workforce and wider sustainability. As part of this Health Check update, we have drawn on some of the discussion points raised at the round table event by the childcare sector representative bodies (Care and Learning Alliance, Early Years Scotland, National Day Nurseries Association, Scottish Childminding Association and the Scottish Out of School Care Network).