Many childcare providers face big financial problems as a result of the virus crisis, with some at risk of closure, a new report warns.

The loss of income from parent-paid fees since March means that many providers face a tough time keeping their doors open, said researchers.

A total loss of income from parent fees would have put one in four private sector nurseries at risk of running a significant deficit during the lockdown, with less than £4 of income for every £5 of costs, it was suggested.

The lockdown hit providers of all sizes and in all areas.

While childcare settings were allowed to open to all children from the start of June, by the start of the summer holidays demand for childcare places remained 70% below pre-crisis levels, said the report.

It warned there was a risk that some childcare providers will close, creating a shortage of places once demand returns.

The research, funded by the Nuffield Foundation and carried out by a team of researchers at the Institute for Fiscal Studies (IFS), the University of Birmingham, Frontier Economics, Coram Family and Childcare, and the University of Surrey, indicated the virus crisis had exacerbated issues within the childcare sector.

Christine Farquharson, senior research economist at the IFS, said: “Childcare closures during the lockdown saw providers’ incomes take a big hit.

“While government support cushioned the blow, especially for settings mostly reliant on public income, we estimate that half of childcare providers were at risk of earning less than £4 of income for every £5 of cost during the lockdown if they took in no fees from parents.

“The lockdown hit providers of all sizes and in all areas, but childminders – who entered the crisis with weaker finances on average – were more exposed than other types of settings.”

Coronavirus has delivered a hammer blow to a childcare sector that was already on its knees after years of underfunding by the Government

Dr Claire Crawford, of the University of Birmingham, said: “Even before the crisis, almost three in 10 childcare settings were running a significant deficit, and there was an ongoing debate about whether the funding rate for free entitlement places was sufficient to cover providers’ costs.

“By squeezing income from parent fees, Covid-19 has magnified these concerns.”

Tulip Siddiq, shadow minister for children and early years, said: “Coronavirus has delivered a hammer blow to a childcare sector that was already on its knees after years of underfunding by the Government.

“This Government’s incompetence has left us on the verge of losing many thousands of childcare places – an outcome that would be devastating for many working families and the children whose life chances are shaped by early education.”

Neil Leitch, chief executive of the Early Years Alliance, said: “As the report rightly states, nurseries, preschools and childminders were already struggling long before the pandemic as a result of sustained Government underfunding.

“Now with the additional challenge of significant falls in parent fee income as a result of the coronavirus outbreak, many childcare providers are unsure if they will be able to survive for much longer – our own research from earlier this year found that one in four feared closure within 12 months.”

Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA) said: “NDNA has been calling for a transformation investment this financial year as well as getting the long-term funding right.

“This must now be made a priority, otherwise we risk more nurseries closing and fewer places being available for working parents.”

A Department for Education spokesman said: “Nurseries, preschools and childminders are integral to this country’s recovery from the coronavirus pandemic.

“That’s why we set out from the start that we would continue providing councils with funding for free childcare entitlements for two, three and four-year-olds, even if settings were closed, which the IFS itself acknowledges has helped protect the sector.

“Early years settings have received significant financial support over the past months and will benefit from a planned £3.6 billion funding package in 2020/21 for free early education and childcare places.

“We are providing extra stability and reassurance to nurseries and childminders that are open by ‘block-buying’ childcare places for the rest of this year at the level we would have funded before coronavirus – regardless of how many children are attending.”