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.

Supporting long-term sustainability in the sector

46. The Health Check has highlighted that whilst all parts of the childcare sector have been impacted by the pandemic, the nature and scale of these impacts has varied across different types of services. For example, demand for some services, particularly for out of school care and childminders not delivering funded ELC, remain substantially below March 2020 levels.

47. This is a challenging period for many parts of the sector and it is too early to determine how many of the impacts that have emerged since March 2020 will be temporary and how many are structural changes which the sector will need to adapt to. It is possible that the patterns, and volume, of demand for provision offered by some providers may not return to pre-pandemic levels. As the Health Check has highlighted the impact of these changes will disproportionately affect some services.

48. Therefore, the key focus of our next steps are on actions that build on the substantial targeted financial support made available to the sector since March 2020, the actions already being progressed (for example, the actions in Our Commitment to Childminding), and aligning, where possible, with economy-wide support measures.

49. These actions are intended to maximise the impact of any available financial resource to support recovery, whilst enabling providers to have the capacity to adapt to support their long-term sustainability.

50. We will now work with the sector and delivery partners to progress these actions.

Targeted Business Support for the Sector

20. The Health Check has highlighted that services across all parts of the childcare sector may need to consider how to adapt their business models in order to support their long-term sustainability, and to respond to potential changes in the nature of demand for different types of childcare provision.

21. To support childcare providers to adapt their services, where required, and strengthen sustainability we will work with the sector, including a range of childcare providers and sector representatives, to develop an initial programme of targeted business, financial management, marketing and human resources (HR) support. This will allow childcare providers to access targeted support if they are in need of refreshing knowledge, upskilling, or accessing specialist advice (for example, to support restructuring).

22. This support will be tailored to meet the differing needs, and business models, of the variety services across the whole childcare sector including out of school care, childminding, and community-based, or third sector, services.

23. This will complement and build on the existing range of support that is currently available including, for example, business support available through Business Gateway. In addition to the targeted support for the sector we will explore what more can be done to help providers access this existing support.

24. We will build on the learning from delivering this initial investment in targeted support, and on the broader range of existing services, to identify the best approach to supporting childcare providers to strengthen their sustainability and to have the capacity to respond to future changes in the sector.

Workforce and recruitment

25. Staff recruitment (in particular of qualified staff) and retention remains an ongoing challenge for some services in the private and third sectors. We are clear that support will continue to be required for these services on recruitment and retention beyond the rollout of 1140 hours. This will ensure that we have the capacity to meet the challenges of our ambitious manifesto commitments on developing a system of wraparound childcare and for the introduction of an early learning offer for 1 year olds from low income households. We will therefore take forward a series of actions to support recruitment and retention across all parts of the childcare sector, including:

· Introducing a Childcare Taster Programme as part of the National Transitions Training Fund in 2021-22. This will aim to provide jobseekers aged over 25 who have recently been made redundant, or are labour market returners, with virtual and physical work experience in a range of childcare settings, to showcase the opportunities of a career in childcare and encourage a diverse range of individuals to go on to join the sector. Skills Development Scotland intends to manage this delivery through its Employability Fund contracts from late summer.

  • Working with colleagues in the Scottish Social Services Council (SSSC) to reach out to individuals formerly registered with them to work within the childcare sector, to encourage them to rejoin the sector.
  • Developing a new Workforce Strategy to explore the medium to long-term recruitment and retention challenges facing the wider childcare sector, in collaboration with the sector.
  • Establishing a Living Wage and Fair Work Implementation Group by the end of 2021, to explore implementation challenges for providers delivering funded ELC and to support the wider childcare sector with the promotion of fair work practices to support staff retention.

Sustainable Rates for Funded ELC Services

26. Alongside this report we have also published updated information on the sustainable rates that services currently receive from their local authorities. In light of this report and the findings from the Health Check we will provide further support to strengthen the process for setting sustainable rates including:

  • reviewing and updating the sustainable rates guidance, originally published in April 2019, to ensure it reflects the current delivery cost factors for services and the varying cost considerations for different types of services;
  • working with COSLA and local authorities to support the sharing of good practice in the application of the sustainable rates guidance and in working with the sector to establish sustainable rates; and
  • exploring the potential for making additional support and advice available to local authorities, where required, to support the sustainable rates setting process to ensure that rates reflect the costs of delivery, provide scope for reinvestment and enable delivery of the real Living Wage commitment.

27. We will work with COSLA to ensure that these changes are made in time to be reflected in the process for setting sustainable rates for August 2022.

28. We will also update the sustainable rates data collection exercise annually, with the updated information published by the end of August each year.

Administrative Requirements on Providers

29. In some of the case study interviews, in particular those with childminders, and the qualitative supporting information provided in survey responses, providers highlighted challenges regarding administrative requirements and that pressures related to this have increased during the pandemic.

30. In order to better understand these potential challenges we will work with the sector to undertake a review of the administrative requirements on providers, particularly for private, third and childminding sector services, and set out what action will be taken to reduce and simplify processes by no later than April 2022.

31. This is closely linked to, and will build on, the action in Our Commitment to Childminding to review local tendering approaches and how recent changes, as part of Funding Follows the Child, have impacted on small and micro-enterprises such as childminders.

Our Commitment to Childminding

32. The childminding sector faced challenges prior to the pandemic, with significant year on year decreases in the number of services. In January 2021 we published Our Commitment to Childminding, which sets out actions to help address these longer-standing challenges, as well as those resulting from COVID-19.

33. Work on these actions has continued throughout the year, however due to the necessary focus on COVID-19 recovery in the first half on 2021, some actions have still to be progressed, whilst new support measures and actions have been introduced. For example, in March 2021 the Scottish Government launched the Childminding Business Sustainability Fund which made a one-off grant of £750 available to all registered childminding services; and the Financial Sustainability Health Check has been undertaken.

34. In September 2021 we will publish the Scottish Government commissioned Ipsos Mori report on ‘Perceptions of the impact of childminding services on child, parent and family outcomes’. The report will provide a wealth of evidence that will be useful to support actions from the Commitment to Childminding plan, particularly the focus areas; Supporting childminding as a choice, by improving availability and access to childminders; and Promoting childminding as a choice, by helping parents and carers make informed choices.

35. We committed that beyond the Scottish Parliamentary Elections in May 2021 the plan set out in Our Commitment to Childminding would be refreshed and brought up to date in line with feedback and reflection on delivered activities and actions. We will now refresh and update this plan to reflect the findings and next steps from the Financial Sustainability Health Check.

36. We are also in the process of establishing a steering group, which will include sector representatives, to monitor progress in delivering the commitments in the plan.

Public Sector Lets

37. The survey highlights the variability of let agreement conditions and charging terms, which particularly, although not exclusively, affects school age childcare services. Premises are let through a variety of sources, including local authorities, community initiatives, Church Halls and local businesses. The Health Check has highlighted that changes in let agreements which have resulted in cost increases have created financial challenges for some services.

38. The majority of SAC services and third sector services rent their premises from a local authority. Across the 32 authorities charges and terms and conditions vary, and the Health Check survey has indicated that some services have free let agreements in place with their local authority. A recent SOSCN survey indicates that close to half charge no fees and 13 charge variable fees depending on the type of service.

39. Given the importance of let terms and conditions to the costs of running childcare services we will work with COSLA and local authority childcare teams to map the various existing approaches to the contract management of let agreements.

40. This work will consider how let agreements are reached, and if and how they affect security and sustainability outcomes for childcare services. Building a shared understanding of these factors could help realise the government commitment to make breakfast, after school and holiday clubs more affordable, particularly for those families who are financially vulnerable.

Funding for representative bodies

41. The Health Check has highlighted the important role that the provider representative bodies play in supporting their members. However, these organisations are facing challenges regarding their own financial sustainability particularly given the impacts of the pandemic.

42. Each of the representative bodies currently receives core grant funding from the Scottish Government. We will now undertake a review to explore how the impact of this core funding can be maximised to support outcomes for children, childcare services, and the long-term sustainability of the representative bodies.

43. We will report on the finding of the review before the end of February 2022.

Impacts of the need to self-isolate

20. Although the impact of the need for either staff or children to self-isolate was only raised by a small number of respondents to the surveys we are aware that this has been an issue that, since the surveys were undertaken, some childcare services have raised as a significant pressure.

21. There have also been recent reductions in the requirements regarding self-isolation. For example, from 9 August adults identified as close contacts of someone who has tested positive for COVID-19 are no longer automatically required to self-isolate for 10 days. Anyone who is double-vaccinated with at least two weeks passed since their second dose and who has no symptoms will be able to end self-isolation if they return a negative PCR test. These changes are expected to reduce the length of time for which staff across childcare services are unable to attend work due having to self-isolate.

22. We will monitor and assess the impact of recent changes to self-isolation requirements on trends in staff absences across the sector in order to identify where further actions may be required to support the sector. To support this monitoring, our main source of data on staff self-isolation is the Care Inspectorate’s weekly staff absence survey. It’s therefore essential that settings prioritise completing this survey each week to allow the Scottish Government to understand the real level of staff absence as a result of self-isolation.

23. We also regularly monitor the impact of the pandemic on service closures and the numbers of children absent for wider COVID-19 related reasons (such as self-isolation). Our main source of data to support this monitoring is the Scottish Government’s fortnightly childcare survey. Again, it is important for settings to prioritise completing this survey to support our understanding of these impacts. We will also continue to engage with sector representatives on the COVID-19 Reference Group for the childcare sector to assess the impact of the full range of risk mitigations in our guidance.



Back to top