10 October 2018
Nadhim Zahawi responds to debate on nursery sector

Nadhim Zahawi responds to a Westminster Hall debate on the sustainability of the nursery sector.

The Parliamentary Under-Secretary of State for Education (Nadhim Zahawi)

It is a pleasure to serve under your chairmanship, Mr Gapes. I congratulate my hon. Friend the Member for Bolton West (Chris Green) on a very thoughtful speech and on securing this important debate. We have heard some important contributions from both sides of the House, and I am genuinely grateful for the opportunity to set out both the Government’s position on childcare support and our priority of ensuring that hard-working parents are able to access high-quality provision.

Evidence suggests that high-quality childcare supports children’s development, as many colleagues have said, and prepares young children for school. Affordable and convenient childcare gives parents the ability to balance work and family life, allowing them to enjoy the benefits of a job, safe in the knowledge that their children are in good hands. That is why—I am very proud of this fact—this Government are investing more in childcare than any other Government. By 2019-20, we will be spending around £6 billion a year on childcare support. That includes an extra £1 billion a year to deliver 30 hours of free childcare and pay our higher funding rates.

The Secretary of State and I announced that we have committed a further £30 million of capital funding to build more school-based nursery places in the most deprived areas. That supports our commitment to social mobility, ensuring that we provide more quality places for those that will benefit the most. We are also providing additional funding, worth around £60 million per year, to support maintained nursery schools at least until 2019-20. Time permitting, I will return to maintained nurseries in response to some of the comments from colleagues.

All three and four-year-olds, along with disadvantaged two-year-olds, are able to access 15 hours a week of free early education. We have just celebrated the first year since doubling the childcare entitlement for working parents of three and four-year-olds to 30 hours a week. The childcare service, which is the online application for 30 hours of free childcare, along with the information available through the Childcare Choices website and the childcare calculator, have helped 340,000 children to take advantage of more high-quality childcare and put savings of up to £5,000 back in their parents’ pockets. That is something to be celebrated.

The recent independent evaluation of the 30 hours free childcare found that over a quarter of parents reported that they had increased their working hours, and 15% of parents said they would not be working without the extended hours. One parent interviewed for the evaluation also noted the wider benefits, which sometimes go unnoticed, of being able to work more:

“By doing four days now instead of three...my company looks at my development and progression in a way that they wouldn’t if I was only doing three days”.

That is great news which genuinely demonstrates the real and valuable impact of 30 hours. At a celebration, I met one parent who came up to me and said, “I just want to thank you for this. We are not the poorest family in the country, but we are certainly not rich. The 30 hours have allowed my wife to retrain in accountancy and she has got a job in that sector.” Those are real lives that are being impacted by a policy that is truly delivering on the ground.

Rushanara Ali

Will the Minister give way?

Nadhim Zahawi

I have so many things to say. The hon. Lady made a thoughtful speech, and I will try to get through as many of the questions asked by her and other colleagues as possible. I hope she will forgive me for not giving way.

In this research, parents also reported wider benefits for their families: a fantastic 86% thought that their child was better prepared for school, and 79% felt that their family’s quality of life had improved. The recently published “Study of Early Education and Development” report evidenced the beneficial impacts of high-quality early education for all children aged two to four on both cognitive and socio-emotional development at the age of four.

The introduction of 30 hours has been a large- scale transformational programme, and change can be challenging for everyone. But we have seen tens of thousands of providers respond magnificently—I want to thank them for that—because of their ongoing commitment to helping families. The evaluation of 30 hours found that three quarters of providers were willing and able to deliver the extended hours, with no negative impacts on their provision or on sufficiency of childcare places. As we have heard from colleagues’ local experiences, the childcare market in England consists of a diverse range of provider types, allowing parents to have choice over their childcare provider. The supply of childcare in England is generally of high quality, with strong indications that existing supply is able to meet parental demand for Government-funded entitlements.

Nearly 80,000 private childcare providers were registered with Ofsted in March this year, and we know that nearly 10,000 school-based providers offer early years childcare. While there are, of course, sad examples of providers closing—as some hon. Members have shared—there is no evidence of widespread closures in the non-domestic childcare market. [Interruption.] Well, let me share the Ofsted data if hon. Members do not believe me. The Ofsted data published in June 2018 showed that the number of childcare places has remained stable since 2012. It is normal for providers to join and leave the Ofsted register, as it is a private market, and it can happen for a variety of reasons.

Most significantly, we have not heard via local authorities, from hon. Members or in the media of eligible parents being unable to find a 30-hours place or a place for any of the free entitlements.

Tracy Brabin

I am so grateful to the Minister for giving way. He says that there is no evidence of parents not being able to access the 30 hours. I have spoken to providers and nursery owners who say that they are not offering 30 hours at all.

Nadhim Zahawi

The hon. Lady makes an important point. It is up to providers whether they want to offer the 30 hours or not. That is a choice for them to make, but we have seen no evidence of parents being unable to find a place.

As important as the availability of a place is, I am also pleased, and in many ways delighted, that the quality of childcare providers remains high, with more than nine in 10 rated good or outstanding by Ofsted. In January 2018, over 1.2 million children under the age of five were receiving funded early education in settings rated good or outstanding by Ofsted.

We continue to support growth in the childcare sector. We have already invested £100 million in a capital fund to create extra high-quality childcare places in all provider types. We continue to work with councils to support the providers who deliver our free entitlements, through initiatives such as the £7.7-million delivery support fund and through our delivery contractor, Childcare Works.

I was not going to mention the NAO report or Frontier Economics, but I am pleased that the shadow Minister commended the thorough and wide-ranging review that the NAO report mentions—we will say a bit more about that later. Over the next year, Childcare Works will continue to work with local authorities to raise awareness and to support childcare providers to deliver the Government’s childcare entitlements, including the 30-hours offer.

The Government have introduced a range of business rate reforms and measures, which will be worth more than £10 billion by 2023—my hon. Friend the Member for Bolton West mentioned the issues to do with business rates—such as raising the rateable value threshold for 100% relief from £6,000 to £12,000, which means that about 655,000 small businesses pay no business rates at all. A package of support worth £435 million over five years is available to those that have had a large hike in business rates. We are also increasing the frequency of property revaluations from every five to every three years following the next revaluation, to ensure that bills more accurately reflect property values.

We have provided powers under the Localism Act 2011 to enable local authorities to offer business rate discounts as they see fit. In 2015, my predecessor and the local government Minister asked officials to write to all councils to encourage them to use those powers to support access to local high-quality childcare provision. So far, I am aware of only two councils that have chosen to do that. Members could talk to their local authorities about joining in to do that.

On the work on costs—I want to address the issue of costs—funding is inevitably and understandably high on our agenda during any discussion about free early education entitlements. My Department continues to pay close attention to the matter. I do not want colleagues to go away with the impression that this Minister thinks funding is not a challenge. We are, however, clear that getting the funding right is critical to the successful delivery of free entitlements.

Tracy Brabin

Will the Minister give way?

Nadhim Zahawi

I am coming on to something the hon. Lady raised, but I shall give way happily if I have time at the end.

This year, we shall be enhancing our annual survey of childcare and early years providers with more detailed research. Again, I commend my hon. Friend the Member for Bolton West on his research, and I am interested in getting deep into the evidence on provider finances and childcare fees for two to four-year-olds. We have also commissioned independent research that involved site visits to a representative sample of early years providers to provide us with robust, up-to-date evidence on the costs of delivering childcare, including operating costs such as business rates. That is part of our ongoing monitoring of 30-hours implementation, and we shall consider the next steps once we have the findings on costs.

I shall now turn to some of the comments made by colleagues. My hon. Friend the Member for Bolton West mentioned VAT. Under European law, registered childcare providers deliver an exempt service, which means that they do not charge VAT on their services. The exemption is obviously designed to ensure that tax does not fall on individuals using welfare services, such as nursery services. However, goods and services purchased by the providers are subject to VAT, which causes understandable frustrations in the sector, but the rules cannot be changed within the existing legal framework. There may be opportunities to make changes to the VAT system in the future, but our rights and obligations remain unchanged until negotiations on our departure from the European Union are complete.

On the point my hon. Friend and many colleagues made about nurseries going out of business, the Ofsted data in itself is interesting. It shows that the number of childcare places available has remained stable since 2012. I also remind hon. Members that childcare providers do not have to offer the free 30 hours—that is entirely up to them—although, since the roll-out of 30 hours of free childcare, we have seen a sizeable majority of providers increasing the number of free hours available to parents, with no evidence of an impact on their funding.

My hon. Friend the Member for Rugby (Mark Pawsey) and other Members mentioned the issue of nurseries charging parents. The Government have been clear that the funding is intended to deliver free high-quality, flexible childcare. It is not intended to cover the costs of meals, consumables or additional services, so providers can charge parents for such things. However, parents must not be required to pay any fee as a condition of taking up a place. Our guidelines state that providers should ensure that their charges are clear to enable parents to make an informed choice.

A number of colleagues mentioned financial support for parents in connection with disadvantage. I remind hon. Members that in addition to the investment that we are making, under universal credit working parents may claim back up to 85% of eligible childcare costs, compared with 70% of costs covered under the outgoing tax credits system.

The hon. Member for Bethnal Green and Bow (Rushanara Ali) raised another issue to do with disadvantage, pointing out that two-year-olds cannot access the disability access fund, the early years pupil premium or the SEN inclusion fund. In 2017, we increased the funding rates for all disadvantaged two-year-olds by 7%, and we pay a higher rate for them because we recognise the higher costs associated with two-year-olds. The two-year-old funding is, by its nature, already targeted to the disadvantaged in that age group.

Rushanara Ali

Will the Minister give way?

Nadhim Zahawi

I shall give way later if I have time. The hon. Lady and the hon. Member for Burnley (Julie Cooper) mentioned maintained nurseries. The Secretary of State and I have both seen the incredible work that maintained nurseries deliver for their communities, and we have made £60 million a year of supplementary funding available at least until 2020. My message to local authorities is: do not take premature decisions on maintained nurseries. Many colleagues have made representations to me about the quality of maintained nurseries in their constituencies.

The hon. Member for Worsley and Eccles South (Barbara Keeley), who is no longer present, spoke about nurseries in Salford being forced to close as a result of funding rules. I met the hon. Lady and other colleagues to discuss the matter, but it is for the council to manage its local markets and to ensure appropriate provision for children with special educational need and/or disability. Councils may request exemption from the high pass-through rule, but Salford chose not to do that. My officials continue to discuss the matter with council officers. I am pleased that there are no 30-hour sufficiency issues in Salford.

The hon. Member for York Central (Rachael Maskell) made a strong speech about the early years workforce and professional development. As she said, staff training and development is associated with quality, and I have announced that we are investing £20 million in professional development and training for practitioners in disadvantaged areas of our country.

The attainment gap was mentioned by the hon. Members for York Central and for Burnley. I would say that we were in agreement. More than a quarter of children finished their reception year still without the early communication and reading skills that they need to thrive. The Government have ambitious plans to halve that number over the next 10 years. The Department is working closely with the sector to deliver on our commitment to reform the early years foundation stage profile. We know that those gaps can emerge much earlier in a child’s life, as the hon. Member for York Central rightly indicated, well before the child enters the reception year. That is why we have recently launched a capital bidding round of £30 million, inviting leading schools to come forward with projects to create new high-quality nursery places for two, three and four-year-olds, which I spoke about earlier.

The hon. Member for York Central also spoke about the need to put the right investment in place for children with SEND. A high-needs funding system provides funding to local authorities for children and young people with complex special educational needs, from age zero to 25. The total high-needs block of funding now stands at a record high of almost £6 billion in England. Every local authority will attract at least a 1% increase in core formula funding per head in 2019-20 compared with 2017-18. The support is there for children with SEND, and our disability access fund is worth £615 per child. Local authorities should also establish an SEN inclusion fund. I think I shall end there, unless colleagues wish to intervene.

Rachael Maskell

The Minister was asked about funding. He has heard from Members across the Chamber that funding does not match need. Will he set out the discussions he has had with the Treasury ahead of the Budget to ensure that we have the right amount of funding for nurseries? Can we expect an announcement on 29 October?

Nadhim Zahawi

I hope that I conveyed to the hon. Lady, even if I did not convince her, that we are looking at funding very closely—a real deep dive. We have included our own additional survey questions for providers and have taken a representative sample of providers so that we can begin to understand it. My hon. Friends the Members for Rugby and for Bolton West and Opposition Members have offered evidence that we will look at very closely. I assure the hon. Lady that we are doing the work to ensure that there is continued sufficiency and that providers are able to deliver the excellent service that many thousands of them deliver.

I thank my hon. Friend the Member for Bolton West for securing this debate and for his thoughtful contributions.

Rushanara Ali

Will the Minister give way?

Nadhim Zahawi

I think I have enough time, although my hon. Friend is allowed a few minutes to conclude the debate.

Rushanara Ali

I was particularly heartened by the Minister saying that local authorities should not make premature decisions about closing maintained nurseries. Will he say a little more about that? If he cannot now, will he write to me? My nurseries face imminent closure, so local authorities need that assurance to find alternatives. They are stuck between a rock and a hard place. I really hope that he appreciates just how serious this matter is and that the Government should not keep passing the buck to local authorities. To say that it is “sad” that local authorities have to do that is not good enough for families. I hope he takes that message to the Treasury in his campaigning, in which we will support him.

Nadhim Zahawi

I repeat, as I have done many times, that local government bodies—I hope many will at least read the transcript of this very good debate—should not make premature decisions on maintained nurseries at this stage. We have a spending review coming. The Secretary of State and I have been around the country looking at the great work that maintained nurseries deliver to the most disadvantaged parents in our country. I am happy to write to the hon. Lady to repeat that message so that she may share it with her local authority.

I am grateful for your patience, Mr Gapes, and to colleagues for their contributions.