Calls to make childcare more affordable continued to heighten ahead of the March Budget, with the Chancellor responding by confirming the early years funding rates

The expansion plan, rolling out in stages over the next 18 months, means that by 2025, the Government will be funding the majority of early education and childcare,

However, the Joseph Rowntree Foundation (JRF) stated that while the expansion will lower costs for many parents across the country, it does not lower any financial burdens for providers and it maintains the inadequate funding rates for the 3–4-year-old offer.

This inevitably has led providers charging parents more in order to cross-subsidise losses.

Tighter regulation

The Joseph Rowntree Foundation highlighted that other factors impacting the sector besides funding have been overlooked and that there hasn’t been significant discussion about whether the sector is “being properly run and regulated ahead of a significant cash injection”.

The analysis shows nurseries backed by investment companies – including private equity firms, asset managers and international pension funds – reported double the profits of other private providers and seven times those of non-profits.

JRF said the findings underlined the need for stricter controls on the sector. This would demand commitments on workers’ pay and value for money from nursery chains – potentially including a profits cap. Businesses in receipt of public funding would also be expected to be financially transparent.

Furthermore, the report noted that the combined debt of England’s 43 largest childcare companies, regardless of ownership, rose dramatically in the same five-year period from £0.6bn in 2018 to £1.13bn in 2022, an 85% rise. The increase has mainly been driven by providers backed by investment firms, who are more willing to take on larger debts in order to finance rapid expansion.

The international market

It’s worth the UK government taking in lessons from other countries childcare market models. Many that deliver private provision and public subsidies include higher controls on public funding.

The report highlights Ireland as an example where governments have balanced incentives to providers with the needs of parents, children, workers and taxpayers,.

The government committed to an entire system reform in Ireland and appointed a number of experts to bring it to life.

The new system consists of three main funding streams, the demand-side National Childcare Scheme and supply-side Core Funding and a provider subsidy to deliver 15 hours of early education and childcare support per week.

These three steams all come under the ‘Partnership for the Public Good’, which is a strategy to realign group provision on the outcomes of users and workers, as well as the sustainability of providers.

These schemes are managed by the Department of Children, Equality, Disability, Integration and Youth, with providers making direct agreements with the minister to deliver schemes.

Joseph Rowntree Foundation recommendations

The foundation outlined a number of recommendations for the government to implement if it wants to see a long term sustainable future for the sector.

Firstly, it stated that the:

“Government needs to fund so-called ‘free hours’ at cost. Then policy-makers should turn to the governance, management and regulation in the market. This means taking seriously the fact that childcare is a market and regulating it like one, in the interest of parents, children and workers, and creating a new framework of obligations and incentives for private providers to be real partners in delivering a crucial public good.”

It proposes a new social licensing model for the early years market, where standards for all providers are a condition of receiving public funding. These should focus on the below:

• worker pay and conditions
• driving up quality standards, including for children with special educational needs and disabilities (SEND)
• value for money, including financial transparency and potential profit caps.

Responsibility for monitoring and enforcing conditions would lie with Ofsted and local authorities.

Engaging with the providers themselves will be key for delivering an effective model and also mitigates the risks of more providers leaving the sector.