We'll need private providers to expand the childcare system to meet everyone's needs

It is hard to get away from headlines on childcare right now. Rising costs, reduced real terms funding rates and workforce pressures are said to be threatening provision across the country. Yet whilst the pitch may have gone up an octave, there is nothing new about childcare crisis headlines - so how well has the current system served us, what is really going on now, and how concerned should we be? And will better investment sort the challenge, or is more radical change needed to who provides childcare and how the system is managed for a sustainable future offer to families?

The evolution of our childcare system

It is worth remembering that England’s childcare system, offering a high degree of state entitlements through a mixed market of public, private and state providers, is a product of a long historical evolution rather than a deliberate system design (i). Until the end of the 1990s, provision was piecemeal – support for 0-three year olds was almost entirely through private and voluntary nurseries, play-groups and childminders (with occasional public support through social services funding). Alongside this, subsidised ‘early education’ in maintained nursery schools and nursery classes existed for three and four-year-olds in some areas. But there was no legal requirement and it varied hugely (ii).

New Labour’s concept of childcare as ‘a new frontier of the welfare state’ required massive harnessing of capacity across all parts of the sector, and further cementing this mixed market model. With the introduction of guaranteed free entitlements to three and four-year-olds, and extension of childcare support to parents through the tax credit system, early years spending leapt up moving England in international terms from bottom to mid-table. Ultimately the decision to engage all providers in the new offer, so long as they could meet a basic standard (whether schools, private or voluntary sector nurseries, or even childminders), was borne out of necessity.

Recognising the challenge of ensuring a stable, fair and functioning offer across very diverse local providers, local authorities were given responsibilities and some powers to monitor and manage childcare markets. They became funnels for national funding for the free entitlement, and in 2006 were given a duty to support all providers and ensure ’sufficiency’ of provision for all working parents.

But their powers of sanction were never strong and their discretion has been weakened over time in an attempt to ‘level the playing field’. Whilst once it was the case that each local authority in effect set its own market entry bars and preferential rates through leveraging free entitlement funding agreements, this often perceived to favour maintained providers. It was also unpopular with chains operating across local boundaries who argued it made business growth impossible. So, from 2014 statutory guidance made Ofsted the ‘sole arbiter of quality’, and strict terms have been set for local funding formulas which must be transparent and equitable and cannot discriminate by provider type aside from a supplement for Maintained Nursery Schools.

Private providers can meet needs which others can’t

Over the last decade, single-site playgroups and local nurseries, especially providing sessional provision have most often faced closure. The tendency has been for them to be replaced by larger settings, those offering full daycare and chains, who can leverage economies of scale and slicker financial management – and critically are more likely to be able to cross-subsidise ‘free’ hours not covered by government funding through fees to more well-off parents. In parallel, with some encouragement from government school-based nursery provision has also grown in recent years.

Whilst Local Authorities have lacked the powers to stop the march of larger chains, most council early years teams I have spoken to would say that this is not a power they have over the years particularly yearned for. Some express concerned about the prices charged, or elements of aggressive growth, or losses of smaller more focused on children with greatest needs. But in funding environments where smaller providers have continually struggled, their presence has often been welcomed. Chains, particularly the larger ones, often bring their own support infrastructure and require less local authority hand-holding. And they do not charge local authorities any more for their services, thanks to standardised free entitlement rates (a sharp point of contrast to private providers of placements for looked after children).

The long view is that despite changes in the mix of provision available, take-up (particularly of universal provision) is high, most parents can find the childcare they need, and there’s good evidence that the quality of provision overall has been on a positive trajectory. Improved qualification levels in the private sector and better in-work training in voluntary settings have made a big contribution to this.

For now, private providers are spread across a variety of areas, not just ‘leafy’ ones, and while there is a slight tendency for the more deprived areas to have fewer private nurseries and fewer ‘outstanding’ providers, the relationship is not strong. And the growth of school-based provision is not all exalted - while valued by local authorities for its quality, it sometimes happens quite autonomously of the local authority’s assessment of need and not part of any strategic plan.

A looming risk of a two-tier childcare market

However, while data does not currently show a national crisis in the number of places despite increased closures, that might not be true for long as funding challenges bite and the under-valued workforce continue to exit for better opportunities. Without substantial investment and a wider reform of the system, the most likely future scenario is an escalating decline, and eventual collapse, of single site providers and small local private and voluntary chains, especially those catering to families and communities who cannot afford to pay more. Large private chains, who are currently better able to entice staff with additional ‘goodies’, are not likely to want to sustain this in less profitable localities and will retreat here too.

If this happens, schools will be left as the main providers of quality early years provision in more disadvantaged areas – which will work well for some, but is less likely to meet the needs of younger children or those whose parents’ working hours means they need care in holidays and more flexible hours. And despite their growth, they will not have the physical capacity to cater to all – especially in areas where school provision has historically been limited. Some private settings might survive or grow in disadvantaged areas to address this – but these are most likely to be less quality focused businesses offering the cheapest services possible based on the lowest qualified staff.

We need to improve the mixed market, not remove it

Funding the free entitlement rate properly (and in recognition of the real value of the workforce) would go a long way. But a more substantial shift is required in order to develop a system that meets the diverse and evolving needs of families, and secures equal access to quality and affordable provision for children.

Any expanded future offer needs to make the most of all provision – and that means a continuation of the mixed market. Policy makers should not fall into the trap of fantasising about ‘becoming Sweden’ (which saw early education and childcare developed initially as an integral part of the welfare state). Whilst the growing presence of large private chains introduces some risks and a market entirely monopolised by them is not desirable, these providers contribute responsive and quality care which should be valued. The contrast with children’s social care placements market here is striking. Whilst both sectors have seen the growth of larger private providers with highly leveraged financial models, extracting significant public funding for profits, in childcare quality private standards are not a source of complaint, and they have not put an additional burden on local authority budgets as this is in effect capped by set free entitlement rates.

One mixed market option being advanced is to go back-in-time to an education/care split – utilising schools for ‘early education’ and the private and voluntary sector to provide ‘care’ for younger children or the wrap-around hours parents need but schools lack the flexibility to deliver. This echoes the Children’s Commissioner’s call to put nursery provision (and older childcare) more fully within the control of the school system, with a bolstered childminder workforce alongside them.

However, making schools the sole purveyors of free entitlements would limit choices, and risks entirely knocking out valued private and voluntary sector local nursery provision and the unique combination of flexibility and quality group care many such settings bring. And whilst school-based provision has grown, it is still only a few trailblazers that have shown appetite to offer extended hours and holiday provision to those children for whom they provide free entitlements provision, let alone reaching further down the age range to younger toddlers.

The changes we need to get there

Beyond workforce investment, securing a diverse and balanced future childcare market is the only sure option of averting a deeply stratified childcare system. There are three obvious areas where changes could deliver real change.

1. A stronger support role for schools and children’s centres or family hubs.

Smaller settings and their staff can better suit families with additional needs, but require greater support infrastructure, and children’s centres and family hubs, and schools, are well placed to provide it. The benefits of integration across early years services are multiple.

If supported and incentivised, more schools and academy chains could bring smaller providers under their wing, providing them with space to operate from rent free, deliver flexibly from within school sites, giving leadership support and input from their own staff, pedagogues and curriculum experts.

1. A stronger role for local authorities supporting smaller settings and managing the market.

A lot could be learnt from what the best local authorities do in terms of supporting and integrating local providers already. And with greater budget freedom they may be able to do more – for example by employing peripatetic professionals to boost leadership support across groups of settings. Beyond this, a strengthening of local authorities’ powers to block new provision where it is set up directly in competition with vulnerable but highly valued smaller or more affordable providers should also be explored.

It is worth noting also that if an extended free entitlement does come to bear, it would enable local authorities oversight on the distribution of a much greater proportion of childcare funding. In this case, it would be worth reviewing the local authority market management role much more comprehensively.

1. A stronger role for philanthropists and charities.

The think tank IPPR recently called for more active development of non-profit providers, operating at scale, to compete with larger providers. They have argued for local authorities to take a lead in this, working with existing maintained or non-profit providers. I would contend that this would muddy the waters in terms of local authorities’ commissioner role, and it is a job best left to philanthropists and charities.

Some relatively large non-profit chains already exist delivering the same kind of quality assurance and in-house training and/or progression opportunities for staff you might see in large for-profit chains, but are more oriented to meet the needs of lower-income families. They too, however, sometimes depend on highly leveraged financial models. Securing more philanthropic support which avoids this scenario and allows profits to be re-invested, rather than used to service debts, would be welcome.

Notes

[i] Private and voluntary nurseries deliver the vast majority of places for 0-4 year-olds – around two thirds according to the latest data, including around half of free entitlement places. The rest is split between school nurseries and nursery classes and a relatively small proportion with childminders. DfE (2022) https://explore-education-statistics.service.gov.uk/find-statistics/childcare-and-early-years-provider-survey

[ii] Northern local authorities and those in some more disadvantaged urban areas (historically industrialised areas with higher female employment) were more likely to have developed maintained provision. Often, but not always, voluntary provision grew to mirror this. This still to some extent explains differences across areas and regions. West and Noden (2016) https://core.ac.uk/download/pdf/46172863.pdf