Understanding the childcare provider market: implications for educational suppliers. Jill Rutter Family and Childcare Trust

Transcription

1 Understanding the childcare provider market: implications for educational suppliers Jill Rutter Family and Childcare Trust 1

2 Contents 1. Introduction 2. The emergence of the UK s early education and childcare sector 3. The structure of the childcare market in 2016 Overview Childminders Nurseries, sessional crèches and pre-schools Wrap-around and holiday childcare 4. Future developments in childcare provision 5. Expenditure on educational supplies 6. The UK s early education and childcare market: implications for educational suppliers Bibliography Acknowledgments About the author About Family and Childcare Trust About BESA 2

3 1. Introduction Childcare is now seen as an essential service for families. Almost all children receive early education and about 60 per cent of working parents purchase some additional childcare on top of their allocation of free early education. Moreover, childcare is an area where governments are expected to intervene: to regulate quality and make sure that there is enough affordable provision for families. This present situation contrasts with that of 25 years ago, when childcare was seen as a private matter for families. Some mothers could afford to employ nannies and childminders and others turned to informal childcare, most usually provided by grandparents. But access to formal childcare was limited and as late as 1990 there were just 59,000 nursery places in England and Wales, compared with 1.1 million places today. Demographic and social changes, particularly increasing rates of maternal employment, forced a change in policy. Driven by growing demand for childcare from higher-earning mothers, the Government took its first steps to make childcare more affordable in 1994 when a childcare disregard to Family Credit was introduced. Today s infrastructure of support for parents now includes free early education provision and help with childcare costs through vouchers and Working Tax Credit (Table One). Since the Government s first moves to increase the affordability and supply of childcare, there was been a large expansion of provision. Most primary schools offer free early education places. Today, in the UK, there are an estimated 23,500 day nurseries, 9,600 preschools and sessional creches, 59,500 childminders and 15,000 out-of-school childcare providers (Table Four). Apart from a large role in the delivery of free early education, the majority of childcare is provided by a diverse private and not-for-profit sector, encompassing self-employed childminders, small, single-site settings as well as larger nursery chains. Childcare continues to be high on the political agenda. Investment in early education and childcare is at record high and help with childcare costs will soon be increased under Universal Credit and the new Tax Free Childcare Scheme (Table One). In England (in 2017) and Scotland (2020), free early education for many three and four year olds will be extended to cover more hours. These changes are likely to impact on the structure of the childcare market. The extension of free early education is likely to put financial pressure on small, single site nurseries, for example, as well as changing the role of childminders. Recent policy changes have been accompanied by both research and public debate about the cost to parents and to the Government - of delivering childcare provision (Department for Education, 2015b; House of Lords Select Committee on Affordable Childcare, 2015;). The wages of care staff represents the biggest outlay to providers and there have been attempts to look at how these might be reduced (Department for Education, 2015b; Rutter, 2016 forthcoming). But about 25 per cent of expenditure for group-based childcare settings relates to materials, equipment, food, administration, rent and rates (Department for Education, 2012; 2015b). The improved use of technology and smarter purchasing decisions have the capacity to reduce some of this expenditure, but this will require educational suppliers to engage with new customers in the childcare market. This report analyses the childcare market from the perspective of educational suppliers. It has been commissioned by the British Educational Suppliers Association (BESA), the trade association for educational suppliers. BESA s members provide a broad range of goods and services which include teaching resources, books, equipment, management support, training, marketing services and IT hardware and software. 3

4 The report draws from a literature review, a survey to childcare providers and interviews with key informants. The survey was sent out in January 2016 and answered by 402 childcare providers, of which 35 per cent were childminders, 45 per cent were group settings providing early education and childcare to the under-fives and 21 per cent offered after school and holiday childcare to children aged five and over, sometimes alongside childcare for the under-fives. The survey questions are listed in the Appendix. The report focusses on three issues: the current structure of the childcare market and how this impacts on educational suppliers future developments in childcare provision that may emerge in the next five years, again looking at the impact of structural changes on educational suppliers expenditure on educational supplies in the UK childcare sector. Terminology This report looks at early education and childcare and uses some specific terminology to refer to different types of provision. Formal childcare includes childminder and day nursery provision offering care over the working day. It also includes sessional pre-schools and sessional crèches, both of which offer part-time provision. Pre-schools generally offer regular part-time early education during term-time and usually take children aged between two and five. Crèches tend to provide small amounts of childcare, on a regular or irregular basis and are popular among student parents. Early education is also provided by nurseries attached to primary schools, or in state nursery schools. This public sector provision mostly runs during term-time and is usually for children over the age of three. While almost all children receive free early education, families use of under-fives provision varies, with their choices dependent on parental employment patterns, personal preferences, childcare availability and the age of children. Table One sets out early education and childcare use among families with children 14 in England. There are broadly similar patterns of childcare use in Northern Ireland, Scotland and Wales. When children start compulsory education at five, parents may use breakfast, after-school and holiday clubs, provision which is often described as wraparound and holiday childcare. Generally this provision is for children aged between five and 11, although some clubs take younger and older children. Other families rely on informal unregulated - childcare, mostly provided by grandparents, other relatives, friends and neighbours. Nannies, au pairs and babysitters span the boundary between formal and informal childcare. Some nannies and babysitters are included on the voluntary part of Ofsted s Childcare Register (and its equivalents outside England), but a significant number of nannies, au pairs and babysitters are unregulated from the perspective of child welfare. While early education and childcare are, theoretically, two different types of personal service, policy makers generally group them together. This is because they are regulated in the same manner: in England, for example, the Early Years Foundation Stage (EYFS) guidance sets out the curricular, assessment and welfare framework to which all formal providers must adhere. EYFS covers both early education and care. In relation to the everyday routines of childminders and day nurseries, early education and childcare cannot really be divided. 4

5 Table One: Percentage of families using different types of childcare by age of child in England during term-time, years 3-4 years 5-7 years 8-11 years All aged 0-14 Any childcare 60% 93% 72% 71% 70% Formal childcare Childminder 7% 5% 5% 3% 4% Day nursery 20% 17% 0% 0% 6% Sessional 7% 14% 0% 0% 3% pre-school Nursery 5% 14% 0% 0% 3% school Nursery class 1% 20% 1% 0% 3% attached to school Reception 0% 24% 12% 0% 6% class attached to school Breakfast 0% 3% 12% 9% 6% club After-school club or activity 1% 8% 42% 50% 31% Informal childcare Grandparents 30% 23% 23% 18% 21% Another 5% 3% 3% 4% 3% relative Friend or 2% 3% 5% 6% 4% neighbour Nanny or au 1% 1% 2% 0% 1% pair Source: Department for Education, 2016a 5

6 2. The emergence of the UK s early education and childcare sector Demand for early education and childcare is at an all-time high in 2016, as shown by the numbers of children attending nurseries and after-school clubs, or receiving free early education. But this is a relatively new position. Until the late 1990s many parents found it difficult to find affordable childcare and as a consequence mothers often left the labour market when they had children. The role of state in early education and childcare was largely confined to a discretionary role for local authorities to offer pre-school nursery education. But economic changes and greater gender equality, alongside campaigning by activists, forced a change in policy. Today, all the main political parties recognise parents needs for affordable, flexible and high quality childcare. As already noted, the Government introduced a childcare disregard to Family Credit in 1994, a move that aimed to make childcare more affordable. The Nursery Education and Grant Maintained Schools Act 1996 was the first attempt by the state to increase the supply of childcare. In 1998, a green paper on childcare was published, which committed the Government to increasing the availability and affordability of early education and childcare in England and Wales (Department for Education and Employment, 1998). In the years after Meeting the Childcare Challenge, the 1998 green paper, the Government introduced free early education, initially for four year olds, and later extended to three year olds. There was also a major push to expand childcare places through the Neighbourhood Nursery Initiative. This ran between 1998 and 2004 and provided grant-funding to set up 1,400 nurseries offering 45,000 early education places in deprived areas (Smith et al, 2007). At the same time, the Lottery s New Opportunities Fund was a UK-wide scheme that provided start-up grants for breakfast, after-school and holiday clubs where the market had not responded sufficiently. By 2004 there were an estimated 555,340 places in after-school and holiday clubs in UK, an increase of over 540,000 places over a 15 year period (Cheshire, 2004). A further ten-year childcare strategy was published in 2004 which paved the way for the Childcare Act 2006 (HM Treasury, 2004). While the 1998 strategy brought in many changes, Choice for parents, the best start for children, the 2004 strategy, was a more significant document in changing the direction of policy. Its recommendations covered four areas (i) work-life balance (ii) childcare supply (iii) childcare affordability, and (iv) quality of provision. To date, it is the most comprehensive childcare strategy in its reach and ambition. The narrative the strategy described - placing childcare squarely in the context of both child development and parental employment - continues to define policy to the present day. Increasing childcare supply The 2004 strategy paved the way for the Childcare Act This legislation obliges English and Welsh local authorities to ensure that there is sufficient childcare for working parents and those undertaking training with the intention of returning to work, as far as it is practicable for them to do so. Local authorities also have a duty to make sure there is enough free early education. There is no legal obligation to provide sufficient childcare in Northern Ireland, and a less specific duty in Scotland where the 2008 Early Years Framework requires that local authorities have a strategic view of childcare accessibility and has a longer-term objective that families have access to integrated pre-school and childcare services in every community matched to an assessment of local demand (Scottish Government, 2008). This guidance was strengthened with the Children and Young People (Scotland) Act 2014 which outlines a new duty on local authorities to consult and publish plans for childcare, for both under-fives and out-of-school care. A number of different measures have been used to increase the supply of childcare. These include: 6

7 Stimulating the childcare market by the parent (demand-side) subsidies such as tax credits. Legislation requiring local authorities to make sure that there is enough childcare (see above). Start-up grants and subsidies to cover capital and revenue costs, although the amount of this funding has decreased in recent years. Limited direct support for providers, such as making them aware of gaps in provision, subsidised training, rent or business rate amnesties, the identification of suitable premises, free premises, smoothing the planning process and small grants for adaptations. Light touch measures such as brokerage, information and advice offered by Family Information Services. The Childcare Act requires all local authorities to offer information advice and assistance on childcare provision. Broadly, the more information and knowledge parents have about local childcare options, the more effectively the market should operate. The local authority role is also critical in promoting the take-up financial help through tax credits, which, in turn, helps to promote demand for childcare. While the overall numbers of providers and places has continued to increase both for under-fives and school children there are still gaps in provision. Some 59 local authorities in England reported shortages of free early education places for three and four year olds in 2015, and 55 per cent reported shortages of childcare for parents who work full-time (Family and Childcare Trust, 2016). Shortages are even more acute in Wales and Scotland, with childcare providers often finding it hard to break even in deprived areas or where there are large numbers of public sector providers. Childcare affordability Childcare affordability remains another aim of government policy. Successive administrations have opted to subsidise parents childcare costs through both supply-side subsidies - to providers to deliver free provision- and demand-side subsidies to parents through tax credits and vouchers (Table One). This approach contrasts with that taken by many other developed countries where all or the majority of public subsidies go to providers as supply-side funding. By 2017, UK spending on early education and childcare will have reached nearly 7.5 billion, made up of: Support for free early education billion for existing levels of provision, plus 990 million in 2017 for the 30 extension and an increase in the average rate allocated to local authorities in England. Working Tax Credit and Universal Credit help billion in the UK and 1.3 billion in England. Tax Free Childcare million in the UK and 700 million in England Legacy support for childcare vouchers and tax relief on workplace nurseries million in the UK (Butler and Rutter, 2016). Table One: A summary of sources of help with childcare costs Level of support Recipient group Date available Where available Childcare element of Working Tax Credit 70% of childcare costs up to a maximum of 175 per week or 1 child Nearly 400,000 low income working families Present UK-wide 1 The Childcare Bill 2016 will strengthen this information duty in England. 7

8 Universal Credit Childcare vouchers Tax Free Childcare Care to Learn Further education Discretionary Learner Fund Higher Education Childcare Grant or 300 per week for 2 or more children. Families receiving housing or council tax benefit get extra help, amounting to about 96% of costs in England 85% of childcare costs, with same maximum levels as Working Tax credit, although no extra help for those receiving housing benefit Worth up to 55 per week for basic rate tax-payers 20% of childcare costs up to a maximum of 2,000 per year. Families of disabled children receive help up to a maximum of 4,000 per year 175 in London and 160 per week outside Discretionary a week for 1 child up to a week for 2 or more children Low income working parents Working parents, but not self-employed and usually excludes those receiving tax credits Working parents not in receipt of tax credits/universal credit whose gross household income is higher than a specified minimum threshold but less than 100,000 per parent Parents under 20 at school or in further education Parents over 20 in further education Parents in full-time higher education who are eligible for student finance From April 2016 Presently available, but will not accept new applicants after 2017 From early 2017 Presently available Presently available Presently available UK-wide UK-wide UK-wide Care to Lean applies to England, but equivalent schemes elsewhere in UK This fund applies to England, but equivalents elsewhere in UK This fund applies to England, but equivalents elsewhere in UK Free early 570 hours per All 3 and 4 year olds Presently England, but 8

9 education year, usually 15 hours per week in term time Free early education extension 1,140 hours per year = 30 hours per week during term-time and the 40% most income deprived 2 year olds 3 and 4 year old children of working parents falling within same income thresholds as Tax Free Childcare available After September and 4 year olds elsewhere in the UK also receive free early education England, but a similar commitment in Scotland Free early education In the UK parents receive help with their childcare costs through free early education. All three and four year old children receive some part-time free early education, with specific groups of disadvantaged two year olds also getting this provision in England, Scotland and Wales (Table Two). From September 2017, the majority of three and four year olds in England will see their hours of free early education doubled, to cover 1,140 hours every year, the equivalent of 30 hours per week over 38 weeks of the year. There are also commitments to extend free education in Scotland and Wales discussed in greater detail in Section Four of this report. As shown above, spending on free early education will accounts for 56 per cent of public spending on childcare in In England, central government allocates money to local authorities for free early education through the Early Years Block of the Dedicated Schools Grant. For two year olds, local authorities get a flat hourly rate per child ( 4.85), supplemented by an area cost adjustment in places where wages are higher. For three and four year olds, the hourly rate for local authorities is partly determined by historical precedent, with big variations in allocations to local authorities. The average allocation for three and four year olds in England was 4.51 per hour for the financial year, but Camden, receives most money 9.17 per hour while Solihull gets just 3.24 per hour. Local authorities then distribute Government funding to individual early years providers, including schools. Decisions about how much money each provider will receive are made by the local Schools Forum, a group made up of representatives of the local authority, schools, the local community and early education providers. For two, three and four year olds, a Schools Forum is allowed to use three optional criteria on top of a deprivation indicator, a basic rate per child and within an overall set budget. How a Schools Forum decides to allocate its money varies considerably between local authorities. This can lead to large differences in hourly funding rates for providers 2, within and between local authorities, which in some cases can amount to over 1,000 per year per child. The Government will consult on a new early years funding system in early 2016 (as well as on schools funding), with a view to providing a more equitable system. It is vital that BESA participates in this consultation as it outcomes will determine the ability of providers to purchase educational supplies. In England, some 94 per cent of three year olds and 99 per cent of four year olds received free early education, with similar, near universal uptakes in Northern Ireland, Scotland and Wales. Uptake of free early education among targeted two year stood now stands at 72 per cent of eligible children in England (Department for Education, 2016b). However, for two, three and four year olds there are marked differences between local authority areas in all 2 See The Department for Education s Early Years Benchmarking Tool. 9

10 parts of the UK, with uptake lower in London, Glasgow and Cardiff, for example. These differences in uptake are a consequence of both a lack of places and parents not being aware of or wanting the provision. Table Two: Free early education entitlement for two, three and four-year-olds in 2016 Entitlement to free early Entitlement to free early education education for two-yearolds for three and four-year-olds England Northern Ireland 570 hours per year for the 40 per cent most income deprived two year olds and certain other groups such as looked after children None Scotland 600 hours per year for children in workless households, extended in August 2015 to take in children in families receiving free school meals and other benefits such as Working Tax Credits. The 2015 extension covers about 27 per cent of the age cohort Wales 12.5 hours per week over 39 weeks, plus additional holiday childcare for about 6,500 disadvantaged children living in deprived areas delivered through the Flying Start programme. This provision is funded at a higher rate ( 7.20 per hour) than comparable provision in England 570 hours per year for all three and four year olds, amounting to 15 hours per week over 38 weeks of the year The equivalent of 12.5 hours per week in term-time for three and four year olds 600 hours per year for all three and four-year-olds A minimum of 10 hours per week for all three and four year olds during term-time, although some local authorities offer more hours In England, 95 per cent of two year olds receive their free early education in private and notfor-profit provision, most frequently day nurseries. When children reach three, only 58 per cent of children receive their provision in the private and not-for-profit sector, with a larger role for pre-schools. A further 34 per cent of children receive their provision in the maintained sector, usually in nursery classes attached to primary schools. When children turn four, the majority (76 per cent) receive their free provision in the maintained sector, usually in nursery and reception classes in primary schools (Department for Education, 2015a). There are slightly different patterns of delivering free early education in Scotland and Wales. In Scotland, there is proportionally more maintained nursery provision than in England. Children receive their free early education there, or through commissioned places in private and not-for-profit partnership nurseries. In Wales, almost all Welsh primary schools have nursery classes where the majority of three year olds receive their free early education. There is also a thriving Welsh-medium pre-school sector cychoeddd meithrin which delivers free early education. 10

11 Tax credits and Universal Credit The current infrastructure of support also includes help with childcare costs through the childcare element of Working Tax Credit and employer-supported childcare vouchers. As Table One shows, there are also some smaller schemes to help parents with their childcare costs, for example, for parents who are students. In April 2014 an estimated 7 per cent of UK families with dependent children under ,000 families in total - received help with their childcare costs through the childcare element of Working Tax Credit (HM Revenue and Customs, 2015). As Table One shows there is a cap on the amount of help that parents can receive, set 175 per week for one child (meaning the parent gets 70 per cent of this = ) and for two or more children. It is only those on the lowest incomes who receive this type of help, as the childcare payment starts to taper off steeply if the first earner in a household earns more than 15,910 per year before tax and National Insurance are deducted. Although tax credit awards are affected by family circumstances, there were only 6,000 families with an annual income of over 30,000 who received any Working Tax Credits in the financial year (HM Revenue and Customs, 2015). Tax credits are now being merged into the single Universal Credit, with 2018 being the target date for its full implementation. Within Universal Credit the overall maximum support levels will remain, although these will be now calculated monthly. In March 2013 the Government announced that it intends to increase the level of childcare support through Universal Credit support to 85 per cent of costs. This will be implemented from April 2016, as parents are switched from Working Tax Credit into Universal Credit. Vouchers and Tax Free Childcare At present, parents not in receipt of tax credits are entitled to help with their childcare costs through employer-supported vouchers and tax relief on workplace nursery costs, with an estimated 540,000 UK parents getting this type of help (House of Commons Library, 2014). Those receiving childcare vouchers can save up to 55 per week if they are basic rate taxpayers or higher rate taxpayers who joined a voucher scheme before 5 April Childcare vouchers can also be banked and used at a time when childcare costs may be particularly high, for example, during the school holidays. The disadvantages of childcare vouchers are that only five per cent of employers offer them and not all childcare providers, particularly out-of-school clubs, accept them. In 2013 the Government announced that it will phase out the present employer-supported childcare voucher scheme and replace it with the Tax Free Childcare scheme. This will be an online system where parents bank their payments and are then linked to their childcare provider and HMRC. This will require that parents and providers have an internet connection and a reasonable level of IT competency. For each 8 a parent pays in, the Government will add an additional 2 up to a maximum of 2,000 per year per child. Families of disabled children receive help with their childcare costs to a maximum of 4,000 per year. Eventually, Tax Free Childcare will cover all families with children under 12, if they meet the required work and income criteria. The Tax Free Childcare scheme is now due for implementation in Childcare quality Parents want their children to be nurtured and to remain safe, as well to receive high quality childcare. It is also only such high quality provision that has the capacity to improve children s outcomes and narrow the childcare development gaps between disadvantaged 3 Parents will get 70 per cent of this =

12 children and their peers. It is for these reasons that governments in all parts of the UK have put in places measures to regulate and improve the quality of early education and childcare. Of course, quality means different things to parents, practitioners and policy makers and there are many definitions of this condition. Quality can be seen as a process, which refers to the experiences of children and staff in early years settings. Structural aspects of quality are stable and measurable factors that are associated with good outcomes in children and include adult-child ratios, staff qualifications, group sizes and staff turnover. Outcome measures provide a third way of considering quality; for early years these include assessment rests results at five years. Research shows that staff qualifications, good leadership and action taken by early education providers to improve the home learning environment are the three provider factors most strongly associated with good development outcomes in young children (Sylva et al, 2004). In the light of such research findings, the Government has put in place a number of measures to improve the quality of early education. In England, the Government regulates early years provision, through a single quality framework covering all formal provision for under-fives, referred to as the Early Years Foundation Stage (EYFS) (Department for Education, 2014b). The EYFS covers childminders, nurseries, pre-schools and state nurseries and reception classes, and outlines early years curriculum and child assessment arrangements, as well as specifying aspects of structural quality such as staffing ratios and qualifications for early years professionals. Ofsted carries out inspections of all formal early education provision against the criteria in the EYFS guidance, with an inspection system that grades providers as outstanding, good, requiring improvement or inadequate. Some 86 per cent of group-based (nursery and preschool) provision in 2015 was judged to be good or outstanding. There are similar quality and welfare frameworks and inspection systems in Northern Ireland, Scotland and Wales. Other recent government interventions to promote quality in England include: A local authority role in improvement regimes. They may provide training as well as support to settings graded by Ofsted as inadequate or requiring improvement, although local authority budget cuts have reduced this help. Some BESA members are involved in delivering funded or sub-contracted training and giving management advice to providers on behalf of local authorities. Funding for early education, with councils able to allocate additional money to providers in order to incentivise quality. However, local authorities can no longer require that providers be judged as good or outstanding as a criteria for offering free early education places for three and four year olds. A Children s Workforce Strategy published in 2005, with another planned for mid The Transformation and Graduate Leader funds, running between 2006 and 2011, and providing 555 million to enable settings in the private and not-for-profit sector to employ a graduate or a member of staff with Early Years Professional Status (a Level 6 qualification, equivalent to an honours degree). An independent review of early education qualifications, undertaken by Nutbrown (2012). Although all parts of the UK have regulatory frameworks, the devolved governments have diverged on approaches to quality. In Scotland, for example, every nursery manager has to have a childcare degree and by 2018 every nursery in the most deprived areas will have an additional qualified teacher or childcare graduate. This compared with the EYFS requirement in England that a nursery manager has a relevant Level Three (equivalent to an A-Level). While qualification levels have improved, particularly in Scotland, the UK childcare workforce remains under-qualified in relation to other developed countries. Some 28 per cent of 12

13 childminders did not have Level Three qualifications in Table Three sets out the percentage of senior managers and childminders in England who had an honours degree (Level Six qualification) in Table Three: Percentage of staff with honours degrees in England, 2013 Senior Manager Non-supervisory staff Childminder 7% n/a Day nursery 33% 3% Pre-school or creche 29% 3% State nursery school 98% 14% Nursery class in state school 97% 13% After-school club 39% 3% Holiday club 35% 2% Source: Department for Education, 2014 Early education and childcare policy: implications for BESA members Since the late 1990s government policy in England, Scotland and Wales has aimed to: Increase the number of childcare providers to meet increase parental demand: Make childcare more affordable to parents Improve the regulation of childcare and increase its quality. The policy changes described above have a number of implications for BESA members, namely: 1. In England, the proposed funding review for free early education and school funding may have a significant impact on the capacity of both local authorities and early education and childcare providers to purchase goods and services provided by BESA members, including IT, training, business advice and management support. 2. Many childcare providers now have to pay for their own training and continual professional development, as a consequence of cuts to local authority budgets. 3. The provision of information and advice about childcare requires that local authority Family Information Services in England and Wales have an online presence. In England, this information duty will soon be strengthened and with local authorities required to maintain up-to-date directories. However, the quality of online material about childcare and the capacity of Family Information Services to use IT to reach parents is very varied (Ipsos MORI and the Family and Childcare Trust, 2015). Family Information Services would benefit from improved IT skills. 4. The childcare workforce remains under-qualified in the UK, compared with many other developed countries. Childminders and managers who lack higher level qualifications may not necessarily make the best purchasing decisions about goods and services. 5. The operation of the Tax Free Childcare scheme will require that childcare providers have an online presence. This opens up opportunities to improve the IT skills, hardware and software purchases of childcare providers. 13

14 3. The structure of the UK childcare market in 2016 The UK childcare market is diverse, in relation to type of provision, ownership patterns, the size of individual businesses and their profitability. Table Three sets out overall provider numbers in England, Northern Ireland, Scotland and Wales, using the most up-to-date data. There are, however, some differences in the structure of childcare markets between the individual nations of the UK and also between different areas. Early education policy is a devolved power in the UK, with the different nations of the UK having different policies towards free early education. This has also contributed to some structural differences in childcare markets between England, Northern Ireland, Scotland and Wales, of which BESA members need to be aware. These are: A higher proportion of public sector day nurseries in Scotland, although the proportion of places offered in public sector day nurseries varies between different local authority areas. More free early education places delivered by school nurseries in Scotland and Wales, compared with England. A lower presence of large nursery chains in Northern Ireland, Scotland and Wales as more three year olds receive their free early education in school nurseries. A vibrant Welsh-medium pre-school sector cylchoedd meithrin which is delivering free early education places for families that want provision in Welsh. Greater use of childminders in Wales and a less developed daycare market. No requirement in Northern Ireland for the Government to intervene in market to make sure that parents have sufficient childcare. Within the nations of the UK, there are also some geographic differences in childcare markets. Generally in northern England and London, a higher proportion of under fives places are delivered by the public sector. There are also more childcare places in affluent areas. Table Four: Numbers of childcare providers in the UK, most recent data England Northern Scotland Wales Ireland Registered childminders 47,936 3,427 5,572 2,437 Day nurseries 19, , (outside public sector) Pre-schools 7, (includes (includes creches) creches Creches n/a n/a Maintained nursery schools State schools with 15,588 1,526 1,116 nursery classes Clubs providing wraparound and holiday childcare 14, (not including school run clubs) Sources: Care and Social Services Inspectorate Wales, 2015; Care Inspectorate, 2015; Department for Education, 2014; Department for Health, Social Services and Public Safety, Northern Ireland, 2015; Ofsted, 2015; Scottish Government,

15 Childminders There are nearly 60,000 registered childminders in the UK. Per 100 children aged under five, Northern Ireland has the most childminders (2.72), followed by Scotland (1.90), England (1.40) and Wales (1.37). The proportionally higher numbers of childminders in Northern Ireland and Scotland reflects their greater use in these parts of the UK. Overall, about six per cent of families in the UK use registered childminders, using them to care for a child under five, or to pick up their children after school or free nursery education. While many families now prefer nursery provision for three and four year olds, parents often want younger children to be cared for in the intimacy of a home environment and use a childminder. Parents who have long commuter journeys or have atypical work patterns may also choose a childminder over group provision, as childminders can often be more flexible in the hours that they offer. Most childminders work by themselves, although about 5 per cent of them are now working assistants. There are also over 200 childminders providing a service termed childcare on domestic premises where two or more registered childminders work from the same property essentially a small scale nursery. Childminder numbers have seen steady decline in England since 2000, falling from 55,281 in 2013 to 47,936 in 2015, a drop of 13.3 per cent, although place numbers have not fallen so steeply, indicating more childminders are working with assistants or providing care to schoolaged children where different care ratios apply. This decline has not taken place in Northern Ireland, Scotland and Wales, where places and childminder numbers have seen a slight increase 4. Here, more children receive their free early education in schools, with families using childminders alongside school-based nursery provision. There are a number of reasons for this overall decline in England, which include parental preferences for group care and a workforce that comprises a disproportionally large proportion of women in their fifties who are now starting to retire (Simon et al, 2015). Additionally, childminder incomes are low: a median of 8.75 per hour in the and they also bear economic risks if places are unfilled. A potential childminder now has to pay for her own training and Ofsted registration in many cases, as well purchase equipment. Low wage, start-up costs and business risks have made other professionals more attractive and childminders have moved to work in nurseries and as classroom assistants in schools. As a consequence of this decline, childminders now only provide 20 per cent of under-fives childcare places outside the school sector in England (Ofsted, 2015). However, collectively they will spend 120 million of materials over one year in the UK, for example, food, books, toys and art materials. The annual insurance spend of childminders is estimated to be 3 million and further administrative expenditure is also about 3 million. BESA members have to balance the challenges of marketing goods and services to this group, knowing that individual expenditure is small, against the overall expenditure of childminders on materials. Their decreasing share of the childcare market, coupled with their small expenditure on educational supplies means that any promotional drive will not generate a large income for educational suppliers. Nevertheless, there are some organisations that could be used to reach childminders and some educational goods and services that would generate a significant income. The survey showed that 57 per cent of childminders do not have a website. Just 29 per cent of childminders use their local Family Information Service as a source of advertising and 14 per cent use social media. Charging childminders 400 to set up a basic WordPress 4 CCSIW statistics show a 5.3 per cent increase in childminder places between March 2012 and March Annual Survey of Hours and Earnings

16 website, with some marketing advice has the potential to generate an IT provider 13.4 million. Some 42 per cent of childminders who responded to the survey were members of PACEY the Professional Association for Childcare and Early Years, formerly the National Childminders Association. There is potential for BESA members to enter into business agreements with PACEY in order to promote goods and services to members at a discounted rate. Childminders expenditure on goods and services tends to be front-loaded to their time of registration. Reaching new childminders is another strategy that might be adopted by BESA members and again PACEY or others who deliver of pre-registration may be a route to this group. Some local authorities still run drop-in groups and childminder networks which offer-going training, advice and the opportunity to meet other childminders. The Government has also encouraged the setting up of childminder agencies in England, which would take over childminder registration and inspection from Ofsted, and also provide training and other forms of support such as business advice. After some initial difficulties setting them up, the charity 4Children is now taking forward childminder agencies. Both local authority networks and the childminder agencies are a means of marketing goods and services to childminders. Day nurseries The most recent data shows that there are nearly 23,500 day nurseries in the UK, with most providing care for children between 8am and 6pm, and sometimes other services such as after-school care or babysitting. Most day nurseries take children from six or nine months of age and care for them until they start school at three or four. Day nurseries and pre-schools deliver the majority of free early education places for two year olds, and about 58 per cent of free early places three year olds in England, although proportionally fewer free early education places in Scotland and Wales. From offering just under 55,000 places in England in the early 1990s, the day nursery sector now delivers 950,000 full-time places in England, with most of this growth taking place in the years up to 2007, although the increase in hours of free early education and its expansion to deprived two year olds caused further growth in day nursery market between 2011 and 2014, with a 10 per cent increase in places in England and Wales over this period and a larger increase in places in Scotland. The day nursery market is diverse, in terms of ownership and size of businesses. In England, the majority of day nursery providers are private sector organisations, although none of the larger chains are publicly-listed companies (Figure Five and Table Six). In contrast in Scotland, 53 per cent of providers are public sector organisations, 40 per cent are private sector and 7 per cent are run by not-for profit organisations, although there are differences between different local authority areas. 16

17 Figure Five: Ownership of day nursery provision in England, % 3% 30% 61% Private sector Not-for-profit Local authority School or college The average number of places per setting is now 45 children, meaning that at any one time 45 children can be accommodated in the nursery with its agreed staff to child ratios (Department for Education, 2014). However, there is a large variation in the size of settings. In Waltham Forest, for example, full time place in day nurseries ranged between 15 places and 140 places. In this London local authority the largest setting were those run by national and regional nursery groups, a trend supported by data shown in Table Six, which indicates that the average size of a setting among the 25 largest nursery chains was 74 places. Analysis undertaken in Waltham Forest also showed that day nurseries with fewer than 55 places tended to find it difficult to break even (Family and Childcare Trust, 2016b).. Fifteen years ago, almost all day nurseries were small, single site settings operated by sole traders or partners. Since 2000 there has been a consolidation of the day nursery market and now nearly 25 per cent of nursery places are delivered by nursery chains operating from at least 10 sites. In England, in particular, a number of large nursery chains have emerged, with the 25 largest chains delivering about 12 per cent of places between them (Laing and Buisson, 2014). Table Six lists the 25 largest UK chains in relation to places, the largest of which (Busy Bees) now has an international presence in South East Asia. In recent years, there has also been a growth in smaller, regional nursery chains operating from 5-10 sites in the same area. There are also frequent mergers within the larger national and regional nursery chains. Both national and regional nursery chains find it easier to raise the capital needed for expansion or mergers. They are also able to generate economies of scale. Nursery chains are able to reduce many of their overhead costs, by centralising their payroll and other administrative costs and through the bulk ordering of food and materials. The survey showed that nursery chains, both large and small, centralise their purchasing mechanisms o Where settings in the same chain are located close to each other as is the case with regional nursery chains bank staff can be deployed across a number of settings. Most nursery chains employ qualified graduate staff whose role is to provide curricular and welfare support to individual nurseries, and to make sure that provision is of high quality. As a consequence, members of nursery chains are more likely to be graded as outstanding or good by Ofsted than are single site nurseries. Access to capital, larger setting size, economies of scale and higher quality are all factors that have all contributed to the recent growth of nursery chains. Table Six: 25 largest nursery chains in the UK Ownership Number Total Mean 17

18 of settings places setting size (places) The Busy Bees Group Private , Bright Horizons Private , Asquith Day Nurseries and Pre-Schools Private 82 6, Pre-School Learning Alliance Not-for-profit 122 4,472 (charity) 37 Childbase Partnership Employee-owned 46 3,979 mutual 87 The Co-operative Childcare Membership 47 3,499 cooperative 74 Treetops Nurseries Private 49 3, Bertram Nursery Group Private, mostly based in Scotland 39 3, Monkey Puzzle Nurseries Private 32 2, Children Not-for-profit 41 2, Banana Moon Franchise, private 36 2, Kiddi Caru Day Nurseries Private 20 2, YMCA Not-for-profit 38 1, Children First Private 18 1, London Early Years Foundation Not-for-profit 36 1,615 (charity), London 45 Kids Planet Private 15 1, Mama Bear s Day Nursery Private 21 1, Tops Day Nursery Private, SW England 16 1, All About Children Private 13 1, Kids 1st Private, NE England 11 1, Just Childcare Private 20 1, Happy Days Private, SW England 16 1, Magic Nurseries Priave, London 17 1, Toad Hall Private 16 1, Tiny Toez Private Source: Nursery World, November 2015 Further trends in the day nursery market are: a reduction in the number of nurseries run by local authorities in many parts of the UK as a consequence of pressures on local authority budgets. In England, for example, day nurseries run in children s centres have been outsourced to the private and not-for-profit sector. a greater involvement of primary schools and academies in running day nurseries as social enterprises. In Waltham Forest, for example, five state schools run day nurseries (Family and Childcare Trust, 2016b). the growth of multi-service childcare providers, where a private or not-for-profit organisation may provide nursery care alongside other childcare services such as after-school, holiday or home-based out-of-hours care. Staff are deployed across all of the services and there are other economies of scale. 18

19 As the nursery market has matured, there has been some segmentation of the market into four distinct types of business: A small number of luxury nurseries, some of which are single settings and others run by large national nursery chains, for example, Asquith Day Nurseries. They charge high prices and offer extra services, for example, early starts or organic food. Many of them have opted not to take two year children who qualify for free early education. As might be expected, these nurseries are almost always located in prosperous areas. Standard day nurseries which offer 8am 6pm childcare but few extra services. They comprise the largest group of nurseries and are found in all areas. They have maintained quality and generally offer places to two, three and four year olds who qualify for free early education. This group of providers includes single settings, smaller regional chains of 5-10 nurseries, as well as some of the larger privatelyowned day nursery chains. Social enterprises, which are often run by charities, as social enterprises or employer or user mutual. Some of these nurseries have a defined social mission and may be located in deprived areas. Some children s centre nurseries that were formerly run by local authorities are now run as social enterprises. They are more likely to offer high quality provision and their business model enables them to offer income-contingent fees for parents. This means that low income or targeted parents receive fee discounts. The strugglers which comprise about 25 per cent of nurseries. They are almost always single site settings and are disproportionately located in deprived areas, where a lack of demand and parental debts make it more difficult to break even. While their fees tend to be lower, they may face quality or profitability problems. Despite recent consolidation, the UK nursery market remains fragmented and still dominated by single site nurseries with low profit margins. Private sole traders working from one site still deliver a third of all nursery places in the UK. Penetrating the single site nursery market presents more challenges for BESA members. It is more time-consuming to market goods and services to large numbers of single site settings, compared with nursery chains. However, a presence at events such as Childcare Expo, as well as entering into business agreements with the National Day Nurseries Association are potential ways to market goods and services to single site settings. As well as spending less on overheads and having lower profit margins, single site settings are less likely to use the goods and services provided by BESA members. The survey showed that just 18 per cent of single site day nurseries had an IT support contract. While nursery chains usually have centralised purchasing arrangements and almost always use wholesalers or online sites, single site nurseries are much more likely to use high street shops and the local cash-and-carry for food, office supplies and other consumables and some teaching resources. Pre-schools There are nearly 8,900 pre-schools in the UK, offering part-time early education, usually to children aged between two and five. The majority of pre-schools are open between 9am and 12 noon during term-time only, although some are open between 9am and 3pm.Working parents who send their children to pre-schools may use additional childcare alongside this early education provision, for example, a childminder, nanny or informal childcare. Just over half (52 per cent) of pre-schools are run by not-for-profit providers, compared with the day nursery sector where under a third of providers are not-for-profit organisations.the strong involvement of the not-for-profit sector is rooted in the origins of pre-schools in the 19

20 UK. A small number of them date back to the end of the 19 th century and the kindergarten movement. The 1960s saw the growth of pre-schools and the start of the Pre-School Learning Alliance, when Belle Tutaev, a London mother, set up her own pre-school after she was unable to find a state nursery place for her daughter. Fifty years later, the Pre-School Learning Alliance is a membership body and also runs 122 pre-schools and nurseries. About 700 pre-schools and nurseries are affiliated to the Montessori Association in the UK. Parents desire for a Welsh language pre-school education for their young children has also prompted the growth of cychoeddd meithrin pre-schools in Wales. The majority of pre-schools are small, single site settings, sometimes running from multi-use premises such as village halls. A number of pre-schools are still parent-led. They tend to be smaller than day nurseries, having an average of 36 places in 2013 in England. A number of nursery chains also run pre-schools, as well as day nursery provision, the most notable being Asquith Day Nurseries and Pre-Schools and the Pre-School Learning Alliance. The numbers of pre-school providers and places in Wales has remained constant over the last 10 years, due to the continued need for Welsh-medium early education. In England, the number of childcare places provided in pre-schools declined by 10 per cent between 2006 and 2013 (Department for Education, 2014). Today, in England they have slightly larger share of the childcare market than childminders, providing about 25 per cent of under-fives places in England. While most pre-schools offer free early education places, their short opening hours (often just for three hours every day) means that they have fallen out of favour with working parents. Many pre-schools have also struggled to break even. As small, single site settings, they do not have the economies of scale of multi-site day nurseries. As they are usually only open for three hours every day, they cannot operate the cross-subsidy systems of day nurseries where working parents are charged a higher hourly rate than providers receive for free early education for hours that they buy on top of free early education. This practice enables day nurseries to subsidise loss-making free early education with parental fees. While the overall UK expenditure of pre-schools on educational goods and services is less than day nurseries, BESA members may be able to market their products to pre-schools through membership organisations such as the Pre-School Learning Alliance, the Montessori Schools Association, advertisement in the specialist press and a presence at events such as Childcare Expo. While many smaller pre-schools use high street shops, local accountants and the local cash and carry for their purchases, pre-schools also purchase educational material online. The survey showed that 24 per cent of pre-schools did not have a website. Website design, help with marketing and business advice has the potential to generate 5 million sales. Crèches Crèches offer sessional childcare for children under five, but unlike pre-schools or workplace day nurseries, parents may not use this provision at a regular time or on a regular day. Crèches are frequently used by student parents, those with irregular work patterns or parents who may need short-term or emergency childcare. Some crèches are located in further education colleges. Children s centres or welfare-to-work projects sometimes run crèches, too. The majority are still provided by the public sector, or with public subsidies.. There is no data on the number of crèche places in England, although a number of college crèches have closed in recent years. In Scotland and Wales, where there are statistics on crèche places, there has been marked fall in their numbers in the last five years. Overall, the volume of childcare places provided in crèches is small compared with day nurseries and pre-schools. Breakfast, after-school and holiday childcare 20