Financial sustainability health check of the childcare sector in Scotland

The financial sustainability health check has collected evidence on the sustainability of the childcare sector and the impact of COVID-19.

It has been informed by detailed surveys of childcare providers, in-depth case study interviews with providers, and analysis of trends in registration data.


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

2. As well as supporting children’s development a strong and sustainable childcare sector is also a key part of Scotland’s economic infrastructure –helping to support parents to work, study or undertake training; and providing employment opportunities across all of Scotland.

3. 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. Ensuring a financially sustainable sector is a key aspect of Funding Follows the Child (FFtC), which is our approach for delivering funded ELC.

4. In recognition of this mixed economy model and the need to deliver high quality ELC, FFtC is ‘provider neutral’ and is underpinned by a National Standard that all settings – regardless of whether they are in the public, private or third sector, or childminders – will have to meet in order to be able to deliver funded ELC.

5. This allows families to have access to high quality funded ELC with the provider of their choice – in the public, private, third sector or a childminder – if that provider meets the criteria set out in the National Standard, has a space available, and is in contract with their local authority to deliver the funded hours.

6. The period since March 2020 and the onset of the impacts of COVID-19 has been challenging for the childcare sector, as it has been for many other sectors of the economy.

7. In April 2021 the Scottish Government commenced work on the Financial Sustainability Health Check to assess the impact of COVID-19 on the business sustainability of childcare providers and to assess the impact of financial support which has been available. However, we have found that for many services, financial sustainability is reflective of the interactions of a number factors and not just the impact of COVID-19. The size and nature of these factors can also vary significantly between different types of providers.

8. 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.

9. Creating the conditions for a sustainable childcare sector in Scotland will also be vital to supporting the delivery of new policy commitments which will be implemented over the course of this Parliament, in particular the development of a system of wraparound school age childcare offer and the introduction of an early learning offer for 1 year olds from low income households.



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