Public Petitions Committee

Meeting date: Thursday, June 15, 2017

Official Report 599KB pdf

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New Petition

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Business Rates (Nurseries) (PE1648)

The next item on the agenda is a new petition: PE1648, by Stephanie Dodds, on nursery business rates. We are joined by Stephanie Dodds and Claire Schofield, who is director of membership, policy and communications for the National Day Nurseries Association. I welcome you both to the meeting and invite Stephanie to make a short opening statement of up to five minutes, after which we will move to questions from the committee.

Good morning, convener, and members of the committee. As you are aware, a key issue for private nurseries is balancing the books, so that they can deliver high-quality childcare while remaining sustainable and keeping fees affordable for parents.

Business rate rises have placed a huge burden on nurseries, which are already facing severe financial pressure from increasing payroll costs associated with the national living wage, pension auto-enrolment and the uncertainties about the provision of 1,140 hours of free early learning and childcare.

Many private nurseries are experiencing financial crises as a result of the recent business rates revaluation. Coupled with the chronic funding shortfalls experienced by private nurseries regarding the current 600 hours and the free provision for eligible two, three and four-year-olds, urgent reform is needed to ensure the sustainability of the sector.

A 2017 NDNA survey identified an average shortfall in the local authority funding rate for private nurseries of about £1,000 a child a year. Nurseries were also asked—again, in 2017—what they will do. They are having to increase their fees substantially to try to offset that shortfall.

The Government’s “A Blueprint for 2020: The Expansion of Early Learning and Childcare in Scotland” talks about private nurseries giving the Scottish living wage, which is another increase they are facing. It will lead to higher payroll increases, which will lead to private nurseries asking whether they want to be in partnership with the local authorities to deliver the 1,140 hours. At a time when the Scottish Government wants us to be at the forefront of early years education, giving the best and providing increased hours for children, we in the private sector are there and able to deliver those hours in the many high-quality private nurseries, so it is such a shame that more and more financial constraints are being put on us, making it difficult for businesses to run.

Following the business relief rate changes, we have been revalued. Most private nurseries are above the new rate. Therefore, if, for example, there are two nurseries under a group, they would not qualify for relief, so that support has been wiped out.

The highest rate increase has been 215 per cent for one nursery in Renfrewshire. A poll by Lambert Smith Hampton found that there were not that many increases in Glasgow—the costs stayed roughly the same as in 2010. However, in Dundee, there were quite big increases, some of which were up to 50 per cent. In Aberdeen, the increases were mostly 50 per cent, but some were as high as 178 per cent. In Edinburgh, the increases were generally more than 70 per cent, with the highest being 147 per cent.

I am the NDNA chair for East and Midlothian, which is a voluntary position. I went out to different members asking for case studies on how their businesses are being affected. A nursery in Paisley, which is not in our area, was, prior to 2017, valued at £16,500 a year, which allowed it to receive relief, so it did well. Unfortunately, the nursery was revalued at £40,000 a year. Therefore, instead of having to pay £588 a month, it has to pay £1,800.87. That is a huge increase for a small business to cope with.

It has just come to light that, on top of the business rates going up, the property drainage and water rates have increased. That nursery is now having to pay those extra costs, too, which is taking the costs up to about £14,000 a year more than it had previously paid. That is the cost of a member of staff in a nursery who is working about 30 hours a week. That is where we are at.

A new nursery that has just opened in West Lothian is paying £50,000 in business rates while the dentist next door is paying £30,000. When the owner inquired as to why that was happening and what the rateable values were based on, she was told that there are four rates for nurseries. A nursery that is not well maintained and whose building is not great will be on the lowest rate. A nursery that is a conversion might be on one of the middle two rates. Someone who has invested in an all-singing, all-dancing, purpose-built nursery—it might be that they do not have a lot of money, but they have invested in it—is being penalised for that and is paying the highest rate.

Nurseries in lovely purpose-built buildings that give children the best care, which is ultimately what this is all about, are being penalised. They will not get any relief because they are above a certain level. That is frustrating people. It seems that people with poor buildings are getting relief and people who are investing are getting none. That is unfair.

The business rates for our nursery in Haddington in East Lothian have gone up by 100 per cent and the business rates for our nursery in Dunblane have gone up by 50 per cent, so the average increase between the two is 75 per cent.

Thank you. How many private nurseries are operating in Scotland? Do you have an estimate of the number that are likely to be affected by the revaluation?

There are about 800 private nurseries in Scotland. We have consulted our members. Unfortunately, we did our survey at the time of the revaluation, but the message that has come through from our annual survey is that the revaluation has made the position worse for the majority of nurseries. There have been some very big increases, and most nurseries have been unable to get any relief because their valuations are too high. As Stephanie Dodds said, we are looking at expanding to 1,140 hours, but the need to pass the cost pressure on to parents is going to make it that much harder for nurseries to get involved in that provision and remain viable.

Good morning. On that point, you will be aware that local authorities have been funded to provide the 1,140 hours, so hopefully that will—

I think the point is that nurseries do not yet know what settlement they will get, or that will be passed on to them.

Yes—that is on-going.

Stephanie, you mentioned in your opening statement that the business rates increase may end up affecting the parents. Have you done any research to find out how many parents might not be able to afford an increase?

I have not done any research, but you can see from the comments on the petition the number of parents who would struggle. They are already talking about a detrimental effect on their ability to put their children into childcare.

Nurseries are not like other businesses. We cannot say, “If we bring in more children, that will help with the shortfall”, because we have constraints. We can only have so many children per area of floor space. People might say, “You could think about cutting down on staff”, but we cannot do that because we need a certain staffing ratio and we want to have high-quality staff. We do not want the children not to have the benefit of that. The only approach is for nurseries to pass some of the cost on to parents and maybe try to absorb some of it themselves, if they can. Some businesses will just close.

The parents who will be hit the most are those with the youngest children, who are at the stage of trying to return to work but are not getting the 1,140 hours because that starts with eligible two and three-year-olds. That is where parents face the heaviest costs, and if nurseries have to put their fees up, they will be hit the most by those increases.

I know it is hard for you to say, but how many of your parents might be unable to continue with childcare? Can you put a rough percentage on it?

I really do not think that I can. I would need to go out and ask, but I imagine that most of them would come back and say that. In the comments on the petition, some of them say, “I don’t know why I’m working just now. Nearly all my salary goes on childcare.” We just keep on thinking it is okay because it is only for a few years, but we already have bad debtors who are clearly struggling to pay their fees. We try to give them a little more time and put in place things such as payment plans, but people are definitely struggling.

Okay. Thank you.

10:15  

Good morning. As you are probably aware, the Community Empowerment (Scotland) Act 2015 allows local authorities to grant relief to any type of ratepayer for any reason, as they see fit, provided that it is fully funded by the local authority. You have already mentioned building quality being considered as a possible factor for relief by a particular local authority. I am not quite sure which authority you were talking about, but are you aware of any moves by local authorities to use the power given to them through the 2015 act to grant relief with regard to nurseries?

I have not heard of anyone who has been able to get that relief. The person in the first case that I mentioned was told no when he asked.

Where did that happen?

That was in Paisley, which would be Renfrewshire.

You said that you were in Dunblane.

I have a nursery in Dunblane and another in Haddington. I have sent in letters in Haddington, asking for some form of relief, but I have had no response as yet.

What about Stirling Council?

I have not done that yet.

On a national basis, we have been encouraging our members to look at all the options with regard to contacting their local authorities and getting reliefs, and no one has told us that they have received any relief. We could look further at that.

Thanks.

We understand that a number of types of businesses, including bed and breakfasts and pubs, have been afforded transitional relief. Are you aware of any specific reasons why nurseries were not afforded this relief?

No.

No reason has been given.

None.

Thank you.

I am looking to see whether members have any final questions, because I am conscious of the time. I think that you have made a very strong case with regard to the issues facing nurseries and the importance of childcare to the Government’s strategy and our own commitments. We received a briefing about the list of businesses that got transitional relief, which included pubs and bed-and-breakfasts but not nurseries. Interestingly, it could act as something of a perverse incentive to you not to improve your properties.

My final point is that there is nowhere for you to go. The margins in your business are such that you cannot address ratio, increase the number of young people and so on.

Without coming to a conclusion about what we think should happen, I sense that the committee wants to explore the petition a bit further. I suggest that we write to the Scottish Government, COSLA and other childcare organisations that might have members who are aware of the concerns you have been highlighting. Do members have any comments to make?

I know through constituency work that the cost of introducing the living wage—which we will all agree with—and the increase in business rates are not necessarily reimbursed at the appropriate level by councils. It is certainly an issue that we need to explore and a loophole that we need to close.

I entirely agree.

Is there anyone else we can write to? I would be interested in hearing from parenting organisations about the margins at which it is still worth your while working. After all, you are paying out against potential future earnings that, if you stay in work, you will be able to get back later on. However, given the nature of your business, I find it very difficult to see how else you can recoup the costs, and we need to find out whether people are looking at transitional arrangements.

We will need to see the response from COSLA. If we do not get a suitable response from it, we will have to go directly to the local authorities—which of course brings us back to the point that the ladies were making.

Or we just go directly to the local authorities right now.

I agree. That would be the most straightforward approach.

If there are other organisations that might have an interest in this area and which we think it worth contacting, we can do so. Perhaps we can leave that to the clerks.

The petitioners have certainly posed a lot of questions. Revaluation is never easy, and I suppose that there are always winners and losers, but the issue is what it means for a pretty core element of the commitment that we all have to people who are in work and the importance of high-quality childcare. We will want to look at all of those questions.

I thank the petitioners for their attendance. We will come back to you once we have received responses to our questions.

I suspend the meeting briefly.

10:20 Meeting suspended.  

10:22 On resuming—