SCOTS nurseries face going out of business as an analysis found just three of Scotland's 32 local authorities are increasing early learning and childcare entitlement to meet rising costs due to soaring inflation and the cost of living crisis.

The National Day Nurseries Association (NDNA) issued the warning as it emerged that childcare businesses in around a third of local authority areas began this academic year without knowing how much they are being paid for funded places.

There are now growing concerns about how the Scottish Government's flagship free childcare policy introduced three years ago is being delivered.

The Convention of Scottish Local Authorities said that it is working with the Scottish Government to review the funding process to consider any  "further lessons and possible improvements".

All children over three years old qualify for 1,140 hours free care per year.

The NDNA say that nurseries in Scotland are constrained by the funding rates given to them for delivering the 1,140-hour child care expansion for three and four-year-olds and eligible two-year-olds.

A study carried out by the NDNA of all Scottish local authorities has discovered that only 56% (18 councils) were committed to increasing their funding rates. But this ranged from a 1.35% uplift in Falkirk to 15.48% in Shetland Islands.

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The NDNA say the average increase in hourly rates is only 36p per hour for children over three.

When the free early learning and childcare policy was launched, the Scottish Government said that up to 130,000 children would be able to benefit from 1,140 hours of free early learning and childcare (ELC) each year.

Available to all three and four-year-olds, as well as two-years-olds who need it most, what was described as a "flagship commitment" was to save families childcare costs of around £4,900 per child each year as of 2021.

The Scottish Government said the expansion from 600 to 1,140 hours of funded ELC (early learning and childcare) was made possible by a "close working partnership" between the Scottish Government, local authorities and providers across Scotland, underpinned by a landmark multi-year funding agreement.

An Audit Scotland analysis has said the increased funded hours a statutory duty of councils has left the childcare sector “fragile”

There are now further concerns that an increase in the National Living Wage will tip even more over the edge.

The Chancellor Jeremy Hunt, confirmed that it would rise to at least £11-an-hour from next April.

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The national living wage - as it has been officially called since 2016 - is lowest amount workers aged 23 and over can be paid per hour by law, and is currently £10.42 an hour.

In Scotland, all nursery providers delivering the 1140 hours of free childcare must pay staff the Real Living Wage which is always higher than the National Living Wage and usually rises in line with it and the cost of living.

The NDNA study found that of the 32 local authorities, Midlothian Council did not respond and ten local council rates were still under review. These had included Glasgow, East Lothian and Renfrewshire.

In its Financial Sustainability Health Check of the Childcare Sector in Scotland published earlier this month, the Scottish Government found that providers costs were going up by 14% this year across all types of day care of children services. Only Fife, Shetland and Clackmannanshire councils committed to meet those extra costs.

The NDNA say that three areas, Dumfries & Galloway, Angus and South Lanarkshire, had been offering at least 10% more than last year and a further nine councils will be giving between 5% and 10% more.

They say that despite inflation still running at just below 7%, five local authorities were not increasing their funding rates for providers, these included Edinburgh City Council and West Lothian. They said that meant a real terms cut in funding for partner nurseries in these areas.

Jonathan Broadbery, NDNA’s director of policy and communication, said: “Our members are telling us that they have serious concerns about their sustainability and their ability to continue delivering funded early learning and childcare places. Their biggest challenge is recruiting and retaining their staff. “Our research into funding rates that providers are receiving from their local authority is not encouraging, with only three that have increased their funding rate sufficiently to allow nurseries to be able to pay their delivery costs.

"We need to see the differential funding rates between council and partner providers addressed. "

The SNP's policy to provide parents with 1140 hours of free childcare can be used in either council nurseries or with a private childcare provider, but there have been fears that unequal funding meant public-sector nurseries can pay staff 30 to 50% more than private nurseries.

As a result, some private childcare providers have lost more than half their staff as they look for jobs in council nurseries.

The NDNA says it is concerned that the latest analysis by the Scottish Social Services Council shows that 26% of senior practitioners and managers from nurseries in the private, voluntary and independent sector had left for lower-qualified but better paid jobs in the public sector.

"With local authorities giving better funding rates to public sector nurseries, it’s no surprise that private and voluntary nurseries are seriously worried about their future," said Mr Broadberry.

Meanwhile, the Scottish Childminding Association has said there has been a drop of 34% in the childminding workforce, while almost 2,000 childminding businesses have closed, meaning more than 11,000 places have been lost, and he warned that trend could potentially double by 2026.

A Convention of Scottish Local Authorities spokesman said: “Local authorities highly value their partnerships with funded ELC providers in the third sector, private sector and childminders who are vital to local childcare offers.

"Under the approach agreed with the Scottish Government, councils set sustainable rates for ELC provision to reflect local operating contexts, from within the budget available to them. At a time when councils are facing substantial pressures on their own budgets, including reduced ELC funding allocations, they have continued to increase the level of funding to providers by an average of over 50% since 2017, as well as providing training and quality improvement support to funded providers. 

A Scottish Government spokesman said: “High quality early learning and childcare (ELC) that is flexible, accessible and affordable is critical to giving children the best possible start in life. That is why the Scottish Government is investing £1 billion in the sector in 2023-24 alone.

“Sustainable rates paid to private, voluntary and independent providers to deliver funded childcare have risen by 57% since expansion began and the most recent data confirms are the highest in the UK on average for 3-5 year olds.  We recognise further improvements can be made to the rate-setting process, which is why we took forward a joint review with COSLA and will set out further detail on that soon.

“Scotland is also the only part of the UK to pay staff delivering funded ELC the real Living Wage and as we set out in the Programme for Government, that will rise to £12 per hour from April 2024.”

"COSLA is currently working with Scottish Government to review the rate-setting process to consider any further lessons and possible improvements. We also note the Scottish Government committed in their recent Programme for Government to pay £12 per hour to those delivering funded ELC from April 2024. COSLA will engage constructively with the Scottish Government to consider implementation of this commitment.

"Local Government remains committed to working together with our partners to further strengthen ELC provision to support the best possible experiences and outcomes for children and their families."