PARENTS across Scotland are facing rising nursery fees as a result of a policy which is supposed to help with the costs of childcare, according to a report.
The National Day Nurseries Association (NDNA), which represents private nurseries, said Scottish Government funding, distributed through councils, was not sufficient to deliver the full cost of providing free places to families.
As a result, some 66per cent of nursery owners said they were having to increase fees to make up the difference, which the NDNA said unfairly penalises parents.
Purnima Tanuku, NDNA chief executive, said underfunding of free places was "chronic" with rising business costs compounding the problem.
She said: "The sector is facing unprecedented challenges because current funding does not cover the cost of free places and costs are increasing.
"Nurseries have great expertise and commitment to high quality childcare and early education that makes a real difference to children and families. They can give parents more support if these funding issues can be resolved."
The call for more funding comes after a survey by NDNA found funding to private nurseries to deliver the Scottish Government's pledge of 600 hours of nursery places fell short of costs by more than £1,000 per child a year for three and four-year-old places.
Some 84 per cent of places are underfunded for three and four-year-old places, the survey of more than 120 nurseries found, with 75 per cent of nurseries suffering shortfalls on a more recent offer for vulnerable two-year-olds.
The report said: "Despite a rising cost base, driven by pay, utilities and business rates, funding paid to nurseries by local authorities is stagnating, with
most giving no increase.
"Costs are set to increase in 2015 with pension auto-enrolment responsibilities coming in for many small and medium nurseries. Pressure on nurseries, most
of which are small businesses, is increased where payment of funded hours is delayed, with 68 per cent of respondents reporting payment four weeks or more after the start of term.
"Nurseries are forced to make up their losses by pushing up the fees parents pay for additional hours of childcare beyond the free 600 hours, or for children below the entitlement age.
"Expansion of free hours, whilst offering welcome support to parents, is a risk to the sustainability of nursery places. Offering more hours and free hours to more children means even heavier losses for nurseries, with no opportunity to make up the shortfall through the additional hours paid for by parents."
Among the solutions recommended by NDNA is the protection of early education funding and more consultation with the private sector to ensure commitments to expand free hours are thoroughly costed.
The body also wants to see a long-term review of the system and a move to allow funding follow the child so free places can be taken up at the early years setting of each family's choice.
Under SNP legislation, families are entitled to a mandatory 600 hours of funded early learning and childcare for three and four-year-olds.
However, a survey by a group of campaigners from Glasgow showed thousands of children are unable to secure the entitlement because councils do not provide sufficient full-time places in their own nurseries and do not pass sufficient funding on to private nurseries to compensate.
A Scottish Government spokesman said: "We have committed £329 million over the next two years, to deliver the expansion in annual funded early learning and childcare for all three and four year olds and our most disadvantaged 2 year olds to 600 hours - a 45 per cent increase in the provision that the Scottish Government inherited in 2007 that is worth £707 per child per year.
"Partner providers are an essential and integral part of our current system of early learning and childcare and it is for each local authority to determine fair and sustainable settlements with these providers. NDNA is a strategic funding partner of the Scottish Government and will receive an increase in funding next year to allow them to improve working relationships between local authorities and private providers." He added that all nurseries will benefit from the decision to cap next year's annual inflationary rise in business rates at two per cent.
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