Nursery rates relief: evaluation

Evaluation of the nursery non-domestic rates relief scheme implemented in Scotland during 2018. We committed to evaluating the benefits of the scheme after it had operated for three years.

1. Introduction

1.1 Policy background – Nursery Rates Relief

Since April 2018, premises in Scotland that are used wholly or mainly as a day nursery have been able to apply for 100% relief from Non-Domestic Rates (NDR)[1]. Non-Domestic Rates are paid by business, public sector and third sector organisations unless exempt. Some nurseries may also be entitled to other relief such as Small Business Bonus Scheme relief, Rural Rates Relief or Charitable Rate Relief.

Nursery Rates Relief (NRR) was implemented in response to a recommendation in the Barclay Review of Non-Domestic Tax Rates:

"We believe that one of the most important ways to supporting economic growth is ensuring that the workforce is supported by convenient, affordable and accessible childcare…Although rates are only one overhead for this sector, we believe a reduction in the rates burden may help enable more of the workforce to return to work after starting a family."[2]

The review also recommended that the relief should be evaluated after three years 'to ensure that benefits of the relief have been felt, including by parents and carers'. The Scottish Government committed to evaluating the relief in its implementation plan in response to the Barclay Review[3].

The relief was initially available for the three-year period 1 April 2018 until 31 March 2021. However, in December 2020, the relief was extended until at least 30 June 2023[4]. The extension took place in the context of the Covid-19 pandemic and was intended to provide support to the sector in combination with other measures, at a time when providers were facing financial pressures as a result of the pandemic.

The introduction of NRR in Scotland took place against the background of a considerable investment in Early Learning and Childcare (ELC) by the Scottish Government to support the expansion in the number of funded hours of ELC that eligible children could access from 600 hours per year to 1,140 hours per year. The move to 1,140 hours resulted in substantial change and investment in the childcare sector, in particular as some providers adapted their business models towards delivering increased levels of funded ELC. The expansion of funded ELC is discussed in more detail in section 1.2 below.

In addition, the Covid-19 pandemic, has had a significant impact on childcare providers. As part of the Scottish Government's response to the pandemic childcare services were, from March 2020, subject to varying levels of restrictions on their operations. These included restricting providers to only being able to offer care to children from key worker families or vulnerable children, and operating under specific public health guidance. The pandemic and the resulting restrictions, have impacted these services through a number of routes including on the cost of delivery, demand for services and income, and on staffing.

These factors make it challenging to attempt to estimate the impact of NRR on either the cost of childcare faced by parents or the viability of childcare providers.

It should be noted that this report is not an attempt at a Value for Money evaluation of NRR. Estimating the precise impacts of the relief is also made more challenging by the lack of specific data on the baseline position (for example, with respect to rates levied across different nurseries) at the creation of the NRR. Instead, the evaluation has focused on setting out the wider context for the sector during the three-year period of the initial scheme – including sector trends and wider evidence on financial sustainability – and complements this with qualitative information from providers. This helps to provide wider context to the role of the relief and outlines the possible impacts of removing the relief.

1.2 Overview of the Nursery Rates Relief evaluation

To evaluate the impact of NRR and its possible removal on childcare providers, this report makes use of:

  • an analysis of trends within the childcare sector based on Care Inspectorate data, the ELC Census and the Financial Sustainability Health Check
  • Scottish Government data on the costs and recipients of NRR
  • a survey of private and third sector childcare providers

Section two describes the background against which NRR has been in operation since 2018. This includes the expansion of funded ELC which has had significant implications including investment in capacity and changes in the business models of private and third sector providers in response. It also describes trends within the childcare sector in recent years such as usage and capacity, making use of Care Inspectorate and Scottish Government statistics. Finally, it draws on data from the Financial Sustainability Health Check to describe the impacts of the COVID-19 pandemic on the sector as well as discussing the possible implications for the sector of the near term economic outlook.

Section three presents data on the number of nurseries in receipt of NRR and other types of NDR relief, the cost of nursery relief and the value of NRR to settings. It also discusses eligibility for the relief and possible reasons why not all premises listed as nurseries on the non-domestic rates Valuation Roll were in receipt of NRR.

Section four briefly sets out the possible impacts of removal of NRR including possible responses by private and third sector providers.

Section five presents the results of a small survey of private and third sector providers. This includes the views of providers on the impact of the relief such as how savings resulting from the relief are currently used as well as possible impacts on providers, children and families of the NRR being removed.



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