Rising demand drives nursery sector to £4.9 bn

Wednesday, November 12, 2014

The expansion of Government-funded places for two-year-olds and better economic conditions has driven demand for children’s nurseries, according to a new report.

Market analysts Laing & Buisson said that the children’s nurseries market is now worth £4.9 billion, an increase of 4% in real terms.

Findings from the Children’s Nurseries UK Market Report 2014 also show a 6.5 per cent rise in the number of children attending nurseries, which LaingBuisson attributes to stronger economic growth, a high early years population and a continued rise in maternal employment.

However, fees increased on average by just below 3 per cent.

The report also points to a stronger demand for places for under-threes, driven by the expansion of funded places for two-year-olds.

Higher demand for nurseries was absorbed by existing capacity, as occupancy also rose by two percentage points over the year.

There was also the first significant rise in the total number of UK nurseries since the mid-2000s, as a large number of small to medium-sized nursery businesses have expanded their capacity.

Some 425 UK nursery groups with three settings or more accounted for 24.6 per cent of capacity in mid-2014, up from 22.7 per cent a year earlier.

The report said this was further confirmation that more corporatisation within the children’s nursery market is driving capacity growth.

While solid economic growth, high employment and more funding for twos places would drive demand for the nursery sector, there were risks to the sector’s growth.

It highlighted a fall in the under-fives population, potential over-crowding of capacity in some areas, and staffing and skills shortages as capacity expands.

The report also highlighted nurseries’ increased dependency on funded places for two-, three- and four-year-olds and the impact of the fall in subsidies for places in real terms, after inflation was taken into account.

The report’s author, economist Philip Blackburn, said, ‘Growth within the children’s nursery sector appears to building a head of steam in line with economic wellbeing, and supported by optimistic expectations of future prosperity from many nursery businesses and investors. Overall,

positive demand drivers going forward support market expansion at a reasonable rate, supported by favourable economic and investment conditions, also by progressive Government funding policy approaching a general election, but dependent on the availability of additional nursery staff.

'However, longer term demand drivers for nurseries are less certain, and as a mature market, demand and supply is vulnerable to cyclical shifts. It is also a sector where regular and ongoing political and regulatory changes may have a significant impact on prosperity at any time.’

Purnima Tanuku, chief executive of the National Day Nurseries Association, said the boost to the economy provided by the continued rise in maternal employment highlighted in the report, went hand in hand with the rise in children using nurseries.

‘Nurseries are making a great contribution to the economy, but they and consequently the 15 hours a week free childcare, could be facing a real crisis unless the outdated funding system is reassessed and made fit for purpose,’ she said.

‘The economic and political momentum to extend the number of free hours reflects the importance of childcare to the health of the economy. But while it is positive that childcare is a political priority, any intervention by the government must be well thought out and properly funded.’

‘Nurseries are doing everything they can to step up and meet families’ needs. What we need now is for the Government to do the same and put a proper funding system in place which will allow more free hours and continue to boost economic growth.’

Neil Leitch, chief executive of the Pre-school Learning Alliance, said, 'It is positive to see that the UK childcare market is continuing to grow, thanks to the hard work and determination of childcare providers and in spite of the ongoing lack of Government support.
'Given the wealth of evidence showing the need for greater investment into the early years sector, it is time the Government accepted that its current approach to the childcare market is fundamentally flawed and needs to change. To continue to ignore the funding challenges facing the sector does a disservice not only to providers, but also the parents and children that they support.'

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