Countdown to Payday - How will the national living wage affect nurseries?

Purnima Tanuku OBE, Chief Executive of the National Day Nurseries Association, asks whether nursery providers are ready for the National Living Wage…

We are about to see the biggest single change for wages regulation since the introduction of the National Minimum Wage 16 years ago. From next April, the government will introduce a new mandatory National Living Wage (NLW) for workers aged 25 and above, initially set at £7.20 – a rise of 50p relative to the current National Minimum Wage (NMW) rate.

The adult NMW rate is currently £6.70, and will stay at this level from April for workers aged 21 to 24. Many nurseries, especially larger chains, are on top of changes and have detailed forecasts and action plans in place. But for others, there is still work to be done to make sure their books will balance in the new financial year.

Knock-on effect
NDNA welcomes the NLW in principle. Our vision is for a well-paid, highly-trained and qualified world-class workforce, but we are concerned about the impact on nursery sustainability – and the inevitable knock-on effect on childcare fees for parents.

NDNA’s own research reveals that the initial uplift will mean, on average, a 10% rise in payroll costs, as employers work to maintain differentials across their staff and reward everyone fairly. In the longer term, as the NLW rises steadily to a projected £9 per hour in 2020, childcare providers are looking at a 35% increase in their wage bills – a frankly scary prospect for many owners and managers.

The German supermarket chain Lidl has become one of the latest household names to embrace higher wages, and is now paying 9000 of its UK workers at least the full living wage. The move represents an average pay rise of £1,200 per year to at least £8.20 an hour and £9.35 in London, beyond the levels recommended by the Living Wage Foundation of £7.85 nationally and £9.15 in London.

Chancellor George Osborne’s NLW is lower than both of these, but will still create a headache for many nurseries. How can it be right that our high street coffee chains and supermarkets can achieve what our sector would love to, but cannot? And why are we left worrying about this when we should be equipped to pay our hard-working staff what they deserve for doing a very important, aspirational job at such a key stage in children’s development?

Chronic underfunding
As we’re all aware, childcare is a difficult sector in which to sustain a business. Margins are tight, even without the chronic underfunding of free places in the financial mix. And it’s this chronic underfunding that’s the real problem.

The Government currently offers all three and four-year-olds, and some two-year-olds, 15 hours per week free childcare during term times. But providers don’t get sufficient funding to cover their costs, meaning they lose on average £800 per year per funded place – a shortfall that must be made up through fees to paying parents.

From next year, the Government will begin doubling free provision in England to 30 free hours per week, for children whose parents work a minimum of eight hours per week each. While we welcome what is, on the face of it, a much better deal for families, this is another daunting prospect for childcare providers.

Ahead of this ambitious expansion, a Department for Education review of nursery funding is currently underway. At the time of writing, much depends on the Chancellor’s Spending Review due in late November, which will set out the government’s public funding commitments over the next three years. The uplift in funding that our sector so desperately needs could make both the NLW and the government’s ambitious childcare reforms achievable.

Step change
Politicians, including Childcare Minister Sam Gyimah, agree that we need more money, but we know that this is not a Spending Review certainty at a time when many public services face severe cuts.

Nurseries want to reward their staff properly – yet the combined financial pressures they are currently under represent a threat not only to their quality of care and education, but their very existence.

The NDNA is therefore calling on the Chancellor to make a real step change in funding to allow for proper pay across the entire early years workforce. It’s what dedicated, talented nursery staff and the children they care for deserve.

For more information about the National Day Nurseries Association, contact 01484 40 70 70, visit www.ndna.org.uk or follow @NDNAtalk

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