1. This update of the Financial Sustainability Health Check has collected evidence on the sustainability of the childcare sector, in particular relating to the impacts of the costs crisis, workforce pressures and the lasting effects of the pandemic.
2. It builds on the evidence and findings from the first Financial Sustainability Health Check published in Summer 2021.
3. It is important that we understand the impact of recent economic developments on childcare providers, to ensure that both national and local policy is informed by up to date evidence about the health of the sector.
4. This update has been informed by detailed surveys of childcare providers and analysis of trends in Care Inspectorate registration data.
Key Findings from the Analysis and Evidence
5. The Health Check update highlights that the childcare sector, like many other parts of Scotland’s economy, is currently facing real challenges due to the ongoing costs crisis, workforce pressures and the lasting impacts of the pandemic. Some types of services have been disproportionately impacted due to their business models and changes in demand for different types of childcare provision.
6. In addition, this update emphasises that financial and workforce issues within the sector are closely linked. These will also constitute key considerations as we develop and implement our new policy commitments over the coming months and years.
Trends in service registrations
7. Analysis of Care Inspectorate (CI) registration data highlights that overall capacity (registered places) across the sector (including childminders) in March 2023 is at a similar level to March 2020, reflecting increases in capacity in local authority services as part of the delivery of 1140.
8. The number of registered private and third sector day care of children services has declined in each year over the period March 2018 to March 2023. However, over this period overall capacity in private sector services increased slightly. The rate of decline for third sector services has increased since the start of the pandemic (March 2020).
9. The highest rates of decline have been for registered childminding services, which have continued their long-term trend of annual decreases. Since March 2020 there has been a 25.6% in the number of childminding services.
10. Annual cancellation levels and rates, since the start of the pandemic (March 2020), for private and third sector services have remained similar to previous years. A key driver of the declines in the overall number of third sector services has been a drop, over the last 3 years, in the number of new third sector service registrations. Similar to third sector services there has been a recent trend in childminding of lower numbers of new services being registered since the start of the pandemic.
11. There has also been a shift in the structure of the sector with a move towards larger services. Service cancellation rates of private and third sector services are higher for smaller services. The majority of smaller services being delivered by local authorities.
Assessments of service sustainability
12. Provider confidence in their financial sustainability has declined across all types of childcare services since the previous Health Check (2021).
13. School age childcare only services and private services were most likely to have considerable concerns over their current sustainability.
14. The largest shift in the assessment of sustainability has been for funded ELC services (with a decline from 64% of these services indicating they were sustainable in May 2021 to 41% of services at the time of the 2023 survey); and for private services (a decline from 51% to 30% respectively).
Costs of delivery and charges to families
15. Average delivery costs have increased for all types of day care of children and childminding services over the last year.
16. Respondents reported a number of reasons for increased delivery costs including: the cost of living crisis, including increased prices of energy, fuel, food, utilities, equipment and learning resources; staffing costs (higher wages due to pay rises, pension contributions, cost of accessing bank staff); costs of paying staff the real Living Wage; costs associated with staff training and recruitment,; increase in insurance costs; PPE costs and cleaning resources; higher rental rates; rising mortgage interest rates.
17. The majority of day care of children services have increased charges to parents and carers for non-ELC childcare over the last year. However, some services reported that they have delayed price increases due to the impact of the costs crisis and in order to prevent a drop in demand. A number of respondents also highlighted that the increase in charges haven’t kept up with inflation.
Demand and income
18. Overall levels of demand (measured as occupancy levels) have decreased for all types of services over the year.
19. Day care of children services have, on average, experienced an increase in monthly income of around 5%. Average monthly income has remained relatively flat across childminding services.
20. Income for the delivery of funded ELC as a percentage of total service income has not changed substantially since 2021, with the exception of third sector services which have seen an increase in the share of total income from funded ELC. Reported share of income from funded ELC was higher for third sector services (84%), compared with Private Sector Services (46%).
21. The Health Check update highlights concerns about staffing, in particular loss of staff from private and third sector services (including some who have left the sector altogether) and challenges in recruiting suitably experienced staff. The majority of services who responded to the surveys had lost at least one member of staff in the last 12 months, with private sector services being most likely to report that they have lost a member of staff (89% of private services).
22. 41% of day care of children services reported having at least one vacancy, with services in the private sector reporting the highest estimated vacancy rate in their setting.
Payment of real Living Wage
23. Services in the third sector and services delivering funded ELC were most likely to report that they currently pay all of their staff at least the real Living Wage (55% of third sector services and 56% of services delivering funded ELC respectively).
24. 81% of funded ELC providers reported that they paid the real Living Wage to either all staff or staff delivering funded ELC. Prior to the expansion to 1140 funded hours, analysis in the Financial Review of the ELC Sector highlighted that in 2016, around 80% of practitioners and 50% of supervisors in private and third sector settings delivering funded ELC were paid an hourly rate below the real Living Wage.
25. The majority (68%) of day care of children services indicated that they planned to pay all staff in their setting the real Living Wage by August 2023. This was highest for services delivering funded ELC (73%).
26. 72% of childminders reported that they did not currently pay themselves the real Living Wage. Childminders estimated that, on average, they paid themselves £8.21 per hour.
27. The previous Financial Sustainability Health Check set out a programme of actions to support the long-term sustainability of the sector. The main focus of our next steps will be to build on actions already being delivered to maximise their impact, including:
- Building on our programme of targeted business support for childcare providers by linking with childminder recruitment pilot induction process. Alongside this we will raise awareness amongst childcare providers of the general Business Gateway offer that is available, and to encourage higher levels of engagement amongst providers, where required, in accessing existing services. We will explore what more can be done in this area with Business Gateway and through engagement with the sector in order to inform any further targeted support.
- Continuing to fund the Care Inspectorate to deliver the ELC Improvement Programme to support funded providers to meet the quality criteria included in Funding Follows the Child and the National Standard.
- Delivering a series of actions to support the childcare sector, including a commitment by the Scottish Government to cover the costs of the Protecting Vulnerable Groups (PVG) membership fees for new entrants to the sector for the remainder of the 2023-24 financial year, publishing a resource setting out sources of funding to undertake qualifications and Continuous Professional Learning, and consolidating wellbeing resources for practitioners.
- Continue funding the Scottish Childminding Association (SCMA) to offer a package of support to new entrants in remote and rural areas to register and establish their businesses, and look at opportunities to expand the scheme further, as undertaken recently by expanding the recruitment model into urban areas.
- Publish the Strategic Framework for Scotland’s Early Learning and School Age Childcare Profession. The Framework will set out priorities for action now and over the coming months and years to ensure the qualifications, training, recruitment, and retention needs of all parts of the sector are met.
- Finalising, and publishing later this year, the joint Scottish Government and COSLA Review of the approach to setting sustainable rates in 2022-23. The findings of the evidence-based review, which has included input from both funded ELC providers and local authorities, will inform what further action may need to be taken to the wider approach to sustainable rate setting over the rest of this Parliament.
- The Scottish Government will also ensure that provider sustainability and workforce issues are addressed as a priority through the programmes of work that are in train on building a system of school age childcare and developing a new offer for one and two year olds, starting with those who will benefit most.
- Publishing our School Age Childcare Delivery Framework. Our delivery framework will outline our school age childcare commitments and our action areas for the next 3 years. In addition, the framework will describe our transformational approach and the principles that we will apply to designing and building a new system of school age childcare.
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