‘Heartbreaking’: the nursery forced to close over Hunt’s free childcare policy

In the playground of the Sprig Ludens nursery, a little girl tests her waterproofs to the limit as the rain falls and she jumps in a giant muddy puddle. Another toddler has a look of fierce concentration on his face as he walks across a plank balanced across two tyres; his little pal climbs a nearby tree.

Filled with a chorus of play and birdsong, Sprigs – as it’s known to its small clients and their grownups – is an incongruous wild island surrounded by a concrete sea of tightly packed terrace houses and busy artery roads in Streatham, south London. “They do camp fires,” says parent Dani Powell. “I love it when my son comes home smelling of smoke.”

But the free-range adventures he has enjoyed here are about to abruptly end. Last week, the charity that runs Sprigs said government funding levels meant it couldn’t afford to pay its staff the London living wage, and it would have to close. “It is just heartbreaking,” says Powell.

One year on from chancellor Jeremy Hunt’s much-vaunted childcare offer in last Spring’s budget, the early years sector is warning of a deepening crisis, with many more nurseries like Sprigs facing closure as they struggle to balance their books.

The policy – 30 hours of “free” childcare for eligible under-5s by September 2025 – was a startling rabbit, pulled out of a budgetary hat by a party not known for creating new branches of the welfare state. Hunt was clear this was about getting economically inactive people back into work. Parents, crippled by childcare costs, were overjoyed.

But the early years sector says the policy has been ill-thought-out and ineptly executed. Many remain furious at the lack of consultation before the announcement, which they argue came on the back of the government “knowingly underfunding” the current 30-hour offering for three- and four-year-olds for years, and a worsening recruitment and retention crisis.

“It’s like having subsidence on your house,” says Sarah Ronan, director of the Early Education and Childcare Coalition. “You don’t then go and build a massive extension without fixing the foundations first.”

On Wednesday, Hunt will present what is likely to be the last Conservative budget before the general election. Early years organisations say ministers have been more engaged with the sector in recent months, but there has been little signal from the Treasury that it is working on a solution.

The problem, say nurseries, is that the hourly rate set by government for free places doesn’t meet the cost. Hunt agreed an increase in November, with £11.22 for under twos, £8.28 for two-year-olds (up from £7.95), and £5.88 for three- and four-year-olds (up from £5.62).

Nurseries may get less than those sums, because the money is distributed to councils, who then set the local rate and pass the cash on. Research by the Institute for Fiscal Studies (IFS) thinktank found the rate for three- and four-year-olds is now more than 10% its 2012-13 levels, adjusting for inflation.

Operators have compensated by increasing fees for unsubsidised hours – so families pay dearly during the holidays, or for children too young to qualify. The cost has risen so steeply many are having to seek alternatives. And the strain will increase as more children become eligible for more hours.

The first tranche of the new offering kicks in from April, with 15 hours a week for eligible two-year-olds during term time. From September the 15 hours will be extended to children from 9 months old. From September 2025, all eligible parents of children under the age of five will be able to get 30 hours.

With the government set to fund 80% of all childcare by September 2025 (up from 50%), the IFS has warned that Hunt’s promise of affordable childcare could become “a theoretical entitlement only”.

And parents are finding the new offer is saving them less than they expected, says Joeli Brearley, CEO of campaign group Pregnant Then Screwed.

“We’re hearing all the time that costs are increasing outside the funded hours and parents are seeing very large increases in the cost of consumables like food and nappies as nurseries look to make up shortfalls,” she says. “The overall savings are far less than families had anticipated.”

The number of nurseries closing is also a major concern, says Neil Leitch, CEO of the Early Years Alliance (EYA), which represents 14,000 early years providers.

There were 3,004 fewer Ofsted-registered early years settings in August last year than the year before (the number falling from 51,147 to 48,143); the number of nurseries and preschools dropped by 502 from 23,040 to 22,538. Last week a quarter of respondents (24%) said it was likely their setting would close over the next year.

“I hesitate to call it a crisis, because the term feels overused and it doesn’t really do the current situation justice,” says Leitch. “For many, and I really don’t say this lightly, I think the system is on the verge of collapse.”

Many of those closing, he says, will be small, charity-run operations in deprived areas like Sprigs. Four years ago, the EYA operated 132 settings in areas of deprivation, today it has 41. “They’ve all operated at a loss in the last 12 months,” he says.

Guardian analysis of official figures revealed that close to a third of not-for-profit nurseries closed their doors or were taken over by private companies, including private equity firms, in the poorest parts of the country from 2018-2022.

Sylvia Tijmstra, CEO at the Streatham Youth and Community Trust (SYCT), which runs activities and centres for local kids, young people and adults as well as Sprigs, says it’s becoming increasingly impossible for charities like hers to run nurseries.

“Eligibility [for government-funded hours] has been expanding and that’s great, but the funding provided by central government, and passed on to us by local authorities doesn’t cover the true cost of delivering good quality nursery provision,” she says.

Other local nurseries are also struggling but are capping the number of funded spaces or forcing parents to take additional hours alongside their free entitlement, which SYCT won’t resort to, she says. “For smaller settings with a certain ethos, I just can’t see how all this can stack up,” she says. “It’s really worrying for the longer term – we’re probably just a small example of a wider problem.”

The government says such fears are overblown. They argue the workforce is stable and more workers will be attracted by its recruitment campaign, while the number of childcare places – if not settings – increased by 40,000 between 2018 and 2023.

“We remain very confident in the strength of our childcare market to deliver the largest ever investment in childcare in England’s history, and we are already seeing providers looking to expand their placements across the country,” said a department for education (DfE) spokesperson.

Crucially, they say there is enough money. The DfE points to the recent uplift in funding and to analysis from the IFS, which states that this year’s average government-funding rates will be higher than the rates paid by parents last year.

With an election expected this year, this may soon be someone else’s headache. Labour has promised an independent review by former Ofsted chief inspector David Bell, which campaigners have long called for. But providers – and parents – are still in the dark about what, if anything, it will change. “They do need to come out with a stance on this really soon,” says Brearley.

In south London, parents who were hoping to use the new entitlement in a nursery they love are instead having to look for alternatives. Sprigs CEO Tijmstra desperately hopes they can get a last minute reprieve in the budget in the guise of an uplift in the rate paid for three and four-year-olds, but thinks it’s unlikely. “If nothing changes around the government funding then we will need to close,” she says. “It’s absolutely devastating.”