Nurseries at risk of collapse due to 'large corporate takeovers'
Katy Morton
Thursday, January 27, 2022
A new report warns the nursery sector is ‘at threat of being damaged’ as smaller settings get taken over by large corporate companies that are ‘profit-focused’.
According to the research by University College London (UCL), nurseries in England are being 'bought up' by large companies without necessarily creating more places or investing more in staff.
The report, published today, charts changes in early years provision over the past two decades. It is based on a review of existing research and data, along with interviews and surveys of 80 nurseries. This included investigation into the financial operation of five medium–to–large private-for-profit nursery groups and six not-for-profit nursery groups.
It shows that large private-for-profit companies are ‘heavily indebted’, and their ‘risky’ financial operating models could threaten the provision of nursery places. For example, researchers found companies had consistent losses of over £10 million and some had borrowing leverage ratios of over 50 per cent.
As such, the report warns that the sector is at threat of being damaged in the same way as adult social care, with care home providers having to close down at short notice.
The authors called their findings ‘very concerning’ given that the Government contributes an estimated £5.6 billion in funds and subsidies to support childcare and education in England.
Other key findings from the report include:
- Large ‘private-for-profit’ childcare companies are not transparent about how they spend the public money they receive. This includes the money from Government for the funded hours and subsidies for parental fees via tax credits or the benefits system.
- Large childcare companies have increased their market share, without a substantial increase in childcare places. In England, private-for-profit nurseries provided 707,000 places (70 per cent of all group-based nursery places) in 2021.
- Private firms charge high prices to parents, relative to other OECD countries, while staff qualifications are among the lowest. The proportion of income spent on wages is lower for the private-for-profit childcare companies than for the not-for-profit companies.
- Staff costs are low in private-for-profit companies. Staff costs could be as much as 14 per cent lower than in the not-for-profit sector.
- A lack of explicit reference from the private-for-profit sector on caring for vulnerable or disadvantaged children.
The report makes several recommendations such as for Ofsted to collect and publish information on the type of ownership of nurseries and whether a setting is part of a chain, and that state funding only goes to childcare operators that can provide accounting evidence that they have financial reserves and low risk of bankruptcy. They also suggest the Government consider making staff and parental involvement in the management of nurseries a condition of settings receiving public funding.
'Urgent reforms must be made to the early years sector'
Antonia Simon (IOE, UCL’s Faculty of Education and Society), associate professor and lead author of the report at the Institute of Education at UCL’s Faculty of Education and Society, explained, ‘Many of the companies that are able to buy up parts of the nursery sector, because of the Government’s funding model, are heavily reliant on private equity funding and have growing debts and low to negative operating reserves, placing such provision at risk of collapse.
‘If these nurseries collapse, as we have seen in the adult social care sector, children and families will miss out on vital and valuable early years care and opportunities and many nursery staff could lose their jobs. Urgent reforms must be made to the early years sector leading to greater transparency and accountability.’
Eleanor Ireland, programme head of education at the Nuffield Foundation, aded, ‘These findings highlight the risks to the financial sustainability of private nursery provision – on which many parents and young children depend – posed by the increasing dominance of large companies that often have high levels of debt and which are not subject to the same level of accountability as voluntary and state-maintained providers. In light of the scale of public money given to these companies, there is a need to ensure it is deployed in the most effective way to provide high-quality, sustainable care for the children and families for whom it is intended.’
The National Education Union said greater regulation is needed of the private nursery sector.
Joint general secretary Kevin Courtney said, 'This report lays bare the problems with the highly privatised system of childcare and early years education in England.
'Early years workers are already scandalously undervalued, with rock bottom pay and terms and conditions that rarely include contractual sick pay. Low pay and severely restricted opportunities for progression underpin the decline in qualification levels in the sector. At the same time, directors and shareholders of some of the largest nursery chains are able to take handsome salaries and dividends. This is simply unjust.
'Greater regulation of the companies and organisations involved is clearly required, but what is also needed is significant investment and a commitment to rebuilding our publicly funded and delivered childcare system. We cannot leave this vital element of our education system to the vagaries of the market.'
A Department for Education spokesperson said, 'We are increasing the hourly rates childcare providers will receive from next year and investing millions of pounds in early years recovery, not only to address the impact of the pandemic on the youngest children’s skills, but also to build a stronger, more expert workforce with a focus on leadership and better training.
'The key measure in a healthy and competitive market is supply of places for parents and children, even as providers enter and exit. We have not seen any substantial number of parents unable to secure a childcare place since early years settings re-opened fully in June 2020, and the majority of eligible two, three and four-year-olds have continued to access free childcare throughout the pandemic, with 97 per cent of providers rated good or outstanding by Ofsted.'
Responding to the report, Courteney Donaldson, managing director of Childcare & Education at Christie & Co, said, 'While there are similarities across both the nursery and adult social care sectors there are also distinct differences. During 2021, we did see an increase in day nurseries closing at short notice. For many owners, the difficult decision to close was largely, in part, due to financial losses arising from the delivery of funded places.'
Helen Hayes, shadow minister for children and early years, said, ‘After twelve years of a Conservative government we now have a childcare system that doesn’t work for parents and doesn’t work for providers either. This research starkly sets out the precarious position of many for-profit nurseries. Families are paying exorbitant amounts of money for their childcare and expect this to be spent for the direct benefit of their children.
‘This model is wholly unsustainable and leaves smaller nurseries at risk of collapse. The Government must ensure taxpayers’ money is spent wisely and well providing the best possible childcare and early years education.’
The report, 'Acquisitions, Mergers and Debt: The New Language of Childcare', is available here
- For more on the research see associate professor and lead author, Antonia Simon's, opinion piece
