The whole Nursery Grant situation is ridiculous! Of course nurseries are going to put up their fees in response to the new rules! What choice do they have? Don?t blame the nurseries. They?re not the bad guys here. It?s the government rules that are to blame.
Just suppose it was some other kind of business that the government had interfered with, instead of nurseries. This is how it works:
Imagine you set up a business making and selling nappies, for example. You get the business up and running, employ staff and build up a good client base. You set your prices carefully, so that you keep the business running and the staff paid, keep the price competitive with rival businesses and hopefully make a modest profit to make all the hard work worth your while. You are happy, your staff are happy and your customers are happy.
Then, the government announces that all children under two will be entitled to receive 4 free nappies a day, paid for by a ?nappy grant? administered by the local authority. To get their free nappies, parents have to go to a nappy provider that is registered with the local authority to receive ?nappy grant?.
Of course, everyone wants their free nappies and all of your competitors rush to register and you begin to lose customers and your profit margins shrink, so that you have to register as well in order for your business to survive.
You normally sell your nappies at 50p each. That?s how much you need to sell them for in order to keep your business running. But the government only pays you 30p for every ?free? nappy that you give to parents, leaving you with large deficits to make up. Most of your customers actually need more than the 4 nappies provided by the grant. Most people want 8 nappies a day. Before the grant arrived, you would have charged £4 for those 8 nappies. Now you the charge parents £2.80 instead (i.e. £4 minus the £1.2 you receive in grant for the 4 ?free? nappies). So, you?re not making any more money than you were before, you?re just getting it from different sources. Everybody's happy again; the parents get their 8 nappies for £2.80 instead of £4 and you keep your business running as before.
That was how it used to be until recently, when the rules changed.
Now, you must charge the same price for your nappies to everyone, regardless of whether they are eligible for the free entitlement or not. This means that you can no longer charge £2.80 as before. Because your usual price for your nappies is 50p each, you must only charge that amount, so for those getting 4 ?free? nappies, you can only charge £3.20 for their 8 nappies per day (i.e 50p each for the extra 4 nappies).
But your business requires £4 in order to survive. You?re losing 80p on every customer and will quickly go out of business. The only thing you can do is to increase the basic cost of your nappies to 70p for everyone, enabling you to charge £2.80 again for the 4 ?free? and 4 ?top up? nappies.
This of course means that people that don?t qualify for the ?nappy grant? have to pay a lot more for their nappies ? and they rightly feel aggrieved ? and you only want to charge them 50p but are forced to charge higher rates in order to keep your business alive!
So you try to set up some sort discount system for your ?non-grant? customers, so they only actually pay £5. But you?re told this isn?t allowed either.
Now you have a rough idea of what the nursery grant rules mean to nurseries!!
It's no wonder some of them are giving up.