Financial sustainability health check of the childcare sector in Scotland

Key Findings from the Provider Surveys

36. The surveys have provided a valuable source of data and context to help inform our assessment of the sustainability of the sector. They were completed using an online form, with links to the surveys sent out to the sector via various routes including through the Care Inspectorate and the representative bodies.

37. The day care of children survey was live from 28 April 2021 to 20 May 2021, whilst the separate survey for childminding services was live from 30 April 2021 to 20 May 2021.

38. There were 167 responses to the day care of children services survey. Based on the latest registration data for the sector this represents around 9% of all registered private and third sector services. There were 203 responses to the childminding services survey, which represents just under 5% of all registered childminding services.

39. In this section we have focused on the key messages and themes from the analysis of the surveys (with more detail available in the supporting Analysis and Evidence paper).

Assessment of Sustainability

40. The surveys asked respondents to provide assessments as to how sustainable they viewed their service on a scale of 1 to 10 (with 1 indicating very unsustainable/potential need to close in near future and 10 indicating very sustainable/no concerns). Respondents were asked to provide this assessment for two points in time: (1) at March 2020 before the impacts of the pandemic, and the restrictions for the sector, took effect; and (2) at the time of answering the survey (for the majority of respondents this would have been during May 2021).

41. Following these questions respondents were then able to provide more context to explain the factors that led them to make their assessments.

42. Table 5 provides a summary of the provider sustainability assessments in each period (at March 2020 and at the time of completing the survey). We have grouped the sustainability assessments into three groups depending on their sustainability rating: (1) services with significant concerns regarding sustainability – ratings between 1 to 4; (2) unclear on overall sustainability - ratings of 5 and 6; and (3) sustainable services – rating of 7 or higher.

43. Table 5 highlights that:

• In March 2020 the majority of providers were generally positive regarding their sustainability, assessing this at 7 or more (although childminding services were least likely to rate their sustainability at 7 or more in March 2020).
• There has been a substantial shift across all types of provider in their assessment of sustainability between March 2020 and at the time of completing the survey (mainly in May 2021).
• Funded ELC services in the private and third sector were the most likely to rate their current sustainability at 7 or more.
• The largest shift in the assessment of sustainability has been for SAC only services (with a decline from 95% of these services indicating a score of 7 or more in March 2020 to 47% of services at the time of the survey).
• SAC only services and childminding services not delivering funded ELC were most likely to have considerable concerns over their current sustainability (a score of 1-4). Funded ELC services in the private and third sectors were least likely to have a concern of sustainability.

44. The key factors raised by respondents to support their current sustainability assessment were:

• Significantly reduced demand for the service resulting in lower levels of income (particularly amongst SAC services and childminding services).
• Increased costs of delivery due to COVID-19 related factors, including enhanced cleaning costs, and additional staffing requirements.
• Concerns over the planned removal of government financial support, in particular the Coronavirus Job Retention Scheme.
• Being a funded ELC provider was highlighted by a number of respondents as being positive for sustainability – however, some respondents felt that the hourly rate that they received from their local authority for delivering funded ELC did not cover their current costs of delivery.
• Concerns about staffing in particular the loss of staff and challenges in recruiting suitably experienced staff.
• Some respondents highlighted that their financial reserves were, or close to being, depleted and some had seen an increase in their debt levels as they have undertaken additional borrowing through various routes.
• Concerns about further lockdown periods and what impact this would have on services.
• Some challenges for specific operating models were raised, in particular committee based groups (usually playgroups in the third sector) were mentioned by a number of respondents.

Changes in costs, capacity, income, and charges

45. Respondents to the provider surveys were asked for information on their average costs of delivery, occupancy levels (as a measure of demand), income flows, and on their charges to parents and carers. These questions asked for detailed information that enabled for comparisons to be made, where possible, between the position in March 2020 and at the time of completing the surveys. Table 6 provides a summary of the survey analysis across these themes.

Table 6: Summary of survey analysis across key themes

Changes in average costs of delivery

• The main focus of the analysis was on the changes in the average costs of delivery as some respondents to the surveys (in particular childminding services) had difficulties in presenting their average costs of delivery on an hourly basis.
• The analysis indicates that average costs of delivery have increased for all types of day care of children services since March 2020.
• It is estimated that the average cost of delivering an hour of childcare to 3-5 year olds in funded ELC services has increased by around 10% since March 2020.
• The analysis estimates that the highest increases in the cost of delivery may be for delivering to school age children, with estimated increases of close to 20%.
• Childminding services, in particular those delivering funded ELC, reported lower rates of change in the average costs of delivery compared to day care of children services.
• The main reasons offered for increasing costs of delivery:
  • Increased cleaning costs were the most commonly reported factor - covering both the additional supplies required as well as additional staff time
  • PPE costs
  • Reduced demand for the service
  • Working with the smaller cohorts (bubbles) which required more staff
  • Costs associated with staff having to self-isolate
  • Increase in insurance premiums
  • Supplier costs have increased (food, utilities, rental charges, waste, etc)
  • Costs of paying staff the Real Living Wage
  • Some childminders reported increased transportation costs, including need to purchase more child car seats.
• The majority of survey respondents (and all third sector and school age childcare services) reported that they let all or some of the premises that they use. For most respondents premises were let from their local authority.
• Some respondents indicated that their costs were increasing due to changes in their let agreements, whilst others were subject to free let agreements with the local authority.

Demand and Income Flows

• Overall levels of demand (measured as occupancy levels) is currently lower for all types of services compared to March 2020.
• In March 2020 the percentage of services who were operating at 75% occupancy or more was similar across all types of providers in the sector (e.g. private or third sector, SAC only, or whether or not they delivered funded ELC).
• The largest declines in demand have been in school age childcare (SAC) only services. At the time of the survey 8% of SAC services were operating at 75% occupancy or more compared to 67% in March 2020.
• Non-funded day care of children services, reflecting the predominance of SAC services in this group, experienced the second highest fall in demand (from 63% at 75% or more occupancy at March 2020 to 12% at the time of the survey).
• Reported changes in demand, in terms of the proportion of services operating at 75% or over occupancy) between March 2020 and the time of the survey were similar for private (from 63% to 30%), third (68% to 33%) and non-funded childminding services (61% to 32%).
• Demand has held up more for funded ELC services with 55% of both day care of children and childminding services operating at 75% or more occupancy at the time of the survey.
• As a result of the reduced demand services have, on average, experienced lower levels of monthly income from fees paid by parents and carers (e.g. non-ELC income) compared to the period to March 2020.
• The largest declines in average monthly income are for school age childcare only services with an average decline of 50% compared to the period to March 2020. The lowest levels of decline have been for funded ELC services in the private and third sector.
• Income for the delivery of funded ELC as a percentage of overall income for funded ELC services has increased since March 2020 reflecting the continued payments for funded ELC and lower levels of non-ELC income.

Charges for families

• Hourly charges to parents and carers for non-ELC childcare have generally increased for most types of provision.
• The surveys indicate that average increases in charges are, in general, lower than average increases reported in the costs of delivery across most service types.
• Some services reported that they have delayed previous planned price increases due to the impact of the pandemic
• A small number of respondents indicated that they were currently reviewing the business model for their service. This included considering whether changes were required to charging structure in order for the service to remain sustainable.
• Reasons highlighted by services for price increases were:
  • Increase required to cover additional cleaning and PPE costs
  • Need to cover general inflationary increases and higher staffing costs
  • Need to increase fees in order to be able to pay all staff in the service the Real Living Wage
  • Implementation of planned annual increase (some services indicate this normally takes effect in August/September each year)
  • Hourly rate received for funded ELC hours doesn’t cover current costs of delivering the service
  • Need to increase charges in order to off-set fall in demand

Staffing

• The majority of services who responded to the survey had lost at least one member of staff since March 2020.
• Services in the private sector were most likely to have lost a member of staff (86% of private services), whilst those in the third sector the least likely to have lost a member of staff (62% of third sector services)
• Services that deliver funded ELC, and services in the private sector, were most likely to report that they currently had one or more staff vacancies in their setting.
• Services in the third sector were most likely to report that they currently pay all of their staff at least the Real Living Wage (70% of third sector services).
• Services in the private sector were least likely to report that they currently paid all their staff the Real Living Wage (37% of private sector services).
• 88% of services delivering funded ELC in the private and third sector indicated that they planned to pay all staff in their setting the real Living Wage from August 2021.