More Affordable Childcare - a wake-up call for nursery businesses?

'Over the next ten years, the Government wants to see a significant increase in the supply of high-quality, affordable childcare that is available at the times when parents need to use it.' This is the first sentence of the Government’s vision for affordable childcare in More Affordable Childcare. Reaction to the document has been interesting and varied with the focus being on the day-to-day impact for the childcare service rather than its overall effect on the childcare market. 

For those who are familiar with the life-cycle of markets and the competitive forces operating within them, More Affordable Childcare appears to be a fundamental shift by the Government to deregulate the childcare market. 

Whilst the headlines and the politicians may highlight a new Tax-free Childcare scheme and the promise of more funding for the front-line, the Government is relying heavily on the market itself to be the determining factor to make childcare more affordable for parents. To date most parents have had little buying power as evidenced in More Great Childcare and summarised as 'parental choice is limited'.  

More Affordable Childcare is proposing to use a raft of market levers to increase choice for parents and to reduce the costs of childcare including:  

• reducing the barriers of local authority eligibility criteria
• encouraging more new providers – with the carrot of start-up funding
• simpler and clearer registration, removing 'unnecessary prescription'
• exemptions for 'wraparound providers'
• making better use of schools with longer hours over more weeks
• allowing more informal childcare — up to three hours
• relaxing planning regulations for expanding places
• allowing 70 per cent of childminders to access free place funding.

Introducing these and other identified levers will start to change the balance of the competitive forces operating in the childcare market, resulting in barriers to entry being reduced, a greater threat from substitutes (that is, the informal childcare market), an increase in the power of the buyer (parents and funders) and a decrease in the power of the supplier (that is, formal childcare providers).   

Overall competitive rivalry will increase as more places become available in both the formal and informal childcare markets. Increased competition will begin to affect all nursery businesses with the most vulnerable being those that already face sustainability issues and lack the business skills to respond to a changing market.  

The lack of business skills in the childcare sector has been highlighted for many years and evidenced as recently as 2011 in the 4Children Business Survey. The sector, quite rightly, has a huge emphasis on childcare quality but in a deregulated market their survival will be just as dependent on their business management skills and the effectiveness of their business processes.  

In the post-credit crunch world, governments of all persuasions will struggle to make childcare more affordable as they face the twin pressures of balancing the country’s deficit and debt. Whilst More Affordable Childcare may be offering some future funding it seems to be relying to a much greater extent on significantly increasing the supply of childcare places as the low-cost way to stimulate the market and provide more choice to parents. 

More choice for parents inevitably means more competition for nursery businesses.  
 
Gordon Beck is a director of Nursery Business Ltd (www.nurserybusiness.co.uk)