Nurseries close as recession-hit parents struggle to pay rising fees

Nursery fees have increased at double the rate of inflation although many parents face pay freezes, reduced working hours, and unemployment because of the recession, according to the latest financial research into childcare.

Last year fees rose by an average of 4 per cent, roughly double the rate of inflation for 2009, according to Laing and Buisson's Nursery Sector Report. The increase has had a marked effect on the number of children attending nurseries which dropped by 4 per cent during 2009, with the recession and rising unemployment leading families to scale back their childcare costs.

The research also found nurseries had been forced out of business because of the recession and more than one in five places lay vacant in 2009 as parents withdrew their children to save money.

This sharp rise in nursery charges followed five years of below-inflation increases, the report found. The increase is thought to have been fuelled by increased staff costs caused by Government reforms aimed at improving nursery workers' qualifications.

However, the report suggested that 2010 may be bringing signs of recovery for nurseries. During 2009 the average vacancy rate was 20.5 per cent but this had reduced to 17.5 per cent in March this year. The recession had hit nurseries in 2009 with its market contracting by 3.4 per cent.

Almost half of nurseries surveyed (47 per cent) reported that their business performance had worsened during 2009, while just over a third (35 per cent) reported no change over the year.

The sector was bolstered by a rise in corporate funding of childcare by employers and vouchers and public sector spending on free early years places.

The number of nurseries fell during the recession, with closures peaking in the summer of 2009. Nevertheless, some businesses grew, and the number of nursery places was boosted by the third and final phase of the government's Children's Centre programme.

Philip Blackburn, an economist and the author of the report, said: "The children's nurseries market, as with other childcare services, has suffered during the recession as falling demand left many nurseries vulnerable, which was compounded by restrictive bank lending and concerns over the sustainability of local authority early years funding for three- and four-year-olds' places. Market conditions may be slowly improving as the economy begins to grow. Bank lending is becoming more accessible and poorer performers have exited the market, easing competitive pressure. However, economic and business fundamentals remain tough and demand for nursery services will remain subdued while unemployment is high and the economy remains lacklustre."

Alison Garnham, chief executive of the childcare charity Daycare Trust, warned that many parents were struggling with nursery costs. She said: "Our research shows that despite the recession, the cost of a nursery place rose by over 5 per cent last year. The burden of this, coming at the same time many parents have faced pay freezes, reduced working hours, and unemployment, has put a huge strain on families."

Purnima Tanuku, Chief Executive of National Day Nurseries Association (NDNA) said the recession had led to a mixed picture for children's nurseries.

She said: "Some nurseries have struggled with falling numbers as parents have lost their jobs, whilst others have shared that they have seen more demand for services, including places for babies due to parents returning to work earlier than planned. Although the impact of the recession in some areas has been offset by a rising birth rate, NDNA remains concerned by rising unemployment levels. Childcare plays a vital role in a successful economy, and it is important that the Government looks at how it can be supported to ensure families can continue to access services and work is a viable option."

Case study: 'We are very lucky that our parents live locally'

Charlotte Johnson-Marshall spends around £10,000 a year to send her two daughters to nursery three days a week. When the recession forced her to increase her working week to four days, she turned to her parents for help, saying that she could not pay even higher costs.

Ms Johnson-Marshall, 34, mother of Phoebe, three, and Madeleine, two, said: "It would not have made financial sense for us to put the girls into nursery for four days. We are very lucky my parents live locally and were willing to help. They now look after the girls one day a week."

Ms Johnson-Marshall, from Nottingham, had worked three days a week as a tax advisor since the birth of her daughters. But after her partner's building business was hit by the recession she took a new four-day-a-week job in March.

She said: "I do not think our nursery is the most expensive around. Putting the finance aside I think it's a really good environment for them to be in. I have no complaints about the quality of care. It is just a shame it has to cost so much."

Sharon Alexander, managing director of Little Achievers Nurseries in Preston, Lancashire, has seen many parents cut back on their children's nursery attendance during the recession. She said: "We had parents go off to work in the morning to be told at lunchtime they'd lost their jobs. Lots of parents have reduced their children's hours. But by being flexible, so far we haven't lost anybody as a customer, they have just cut back their hours. We've started short crèche sessions which are just breaking even so we can retain that customer within our business. We know things will improve and we want our customers to be with us when they do. Nurseries have closed all around us. We've done well to survive."