Childcare and nursery education in England is in the process of being transformed. Following ministers’ decision to make it a priority as a way to tackle labour shortages, public funding is set to double by 2027-28. In a few years 80% of all early years places will be government-funded, compared with 50% today. At the same time, pressure on providers caused by long-term underfunding and rising costs has led to a situation in which private equity and investment company-backed nurseries are expanding at the expense of everyone else.
New research showing that more than £1 in every £5 spent at such nurseries ends up as profit is one thing that is wrong with this situation. Another is their level of debt, which is typically far higher than average (between 2018 and 2022, investment firm backed nurseries had debts on average three times their income – more than twice the ratio of other private nurseries). A third is weak regulation, in some cases making accounts hard to scrutinise. These factors combine to increase the risk of a business failure, with the potential to severely disrupt the lives of young children (for comparison, imagine the impact of a reception class closing down).
In addition, research shows that for-profit childcare companies charge high prices, by international standards, while paying their staff lower wages than charity-run ones. Evidence about quality is mixed. There is no clear pattern whereby non-profits do better in Ofsted inspections, or vice versa. But as a new report from the Joseph Rowntree Foundation (JRF) argues, this is not the only criterion on which businesses in receipt of billions of pounds of public money should be judged.
The Institute for Fiscal Studies (IFS) describes the expanded childcare sector as “the newest branch of the welfare state”. While in broad terms such growth is welcome, this branch needs strings to hold it in place. Financial regulations, rules about working conditions and provision for children with special educational needs should all be tightened. Ofsted has started looking at the financial viability of children’s social care providers, and treating early years businesses in the same way makes sense. JRF’s proposal for a capital loans scheme to enable small businesses to expand should also be taken up. Currently, community nurseries are at risk of being swept up or away by bigger, richer rivals.
Lax oversight, and the unfair advantage this gives some businesses, is not the policy’s only flaw. The shifting of subsidies away from the poorest families towards working parents is, in the IFS’s words, “intentionally regressive”. With child poverty as high as it is, and rising concerns about the number of reception-class children who are not toilet trained and school ready, the decision to plan around employers’ demands, rather than the needs of children, is both callous and shortsighted. Ministers have shown repeatedly that early intervention is not their priority, but problems ignored in preschool years will only emerge further down the line.
Small and powerless though they are, under-fives deserve more consideration than this. But having failed to get a grip of the market they are funding, ministers have at least created the conditions for the next government to do more.
• This article was amended on 13 March 2024. Ofsted has begun looking at the financial viability of newly registered children’s social care providers, but it is not inspecting accounts as an earlier version said.
