The childcare market isn't working

Stephen Burke, director of Good Care Guide and United for All Ages
Friday, March 4, 2016

Stephen Burke says that there is a looming crisis for the childcare market as new initiatives roll out

On the face of it, the annual survey of childcare costs published recently by the Family and Childcare Trust presented good news for both parents and the Government. There were no shock headlines about rocketing childcare bills as the survey revealed that the cost of childcare to parents has stabilised in the last year.

But dig deeper and there are some very worrying signs for the childcare market as the Government prepares to roll out two major initiatives.

The survey highlighted that, in many parts of the country, parents with children aged three and four are finding it harder to find the free childcare places they are entitled to.

This reflects the fact that private nurseries and other childcare providers are pulling back from offering the free entitlement of fifteen hours a week because they are not being funded sufficiently to cover their costs. The hourly rate given via local authorities to childcare providers for the free entitlement goes nowhere near covering the costs of delivering a quality service.

Providers in areas with parents earning mid to higher incomes are able to cross-subsidise free places by charging higher rates for the childcare that parents use beyond the free fifteen hours a week.

Providers in poorer, disadvantaged areas don’t have that option. Increasingly in these areas, parents who can’t afford to pay for childcare rely on a mix of family and friends’ care. As a result fewer nurseries are offering just the free entitlement and parents therefore can’t access childcare places for their three and four year olds.

On top of this, more local authorities are reporting that they do not have enough childcare in their area to support parents working full-time. And as the labour market changes, more parents want flexible, part-time places outside the traditional 8am-6pm childcare provision to match the changing nature of their own employment.

The childcare market is not working and it hasn’t kept pace with our changing society.

In the coming months we will see even more pressures on childcare providers. First they will face increased costs with the introduction of the national living wage and automatic enrolment for employee pensions. Some providers will see a 10% increase in their costs overnight, squeezing already tight margins.

Then there is the extension of the free entitlement to 30 hours a week, which came out of the bidding war for votes in the 2015 general election campaign. To outbid the Labour Party’s pledge of twenty five hours a week free childcare for three and four year olds, the Conservatives offered thirty hours a week.

But there is little evidence that many parents want thirty hours a week, let alone evidence of the benefits for children.

Just as worrying is the impact on providers of the free entitlement. If they are already struggling to deliver the under-funded fifteen hours a week, they will find it very difficult to deliver a poorly funded 30 hours a week. Fewer parents will want to buy childcare hours above and beyond the free 30 hours entitlement, thereby reducing the opportunity to cross-subsidise.

The only small blessing is that the 30 hours entitlement will only cover 38 weeks a year, so many parents will need to pay for childcare in the remaining weeks of the year.

2017 will also see the introduction of the long-awaited tax break for childcare. This will help those parents on mid to higher (but not the highest) incomes, not necessarily those struggling to pay for childcare. Parents tell our website, the Good Care Guide (,  that the cost is still their biggest concern about using childcare. The help that will come through Universal Credit for lower income parents will not be enough to help these parents back into work, let alone pay for more hours of childcare.

All in all, we are heading for the perfect storm for childcare. The Government is substantially increasing its investment in childcare but there must be serious doubts about whether the thirty hours free entitlement can be delivered and whether many childcare businesses will survive. This will be on top of the continuing closure of children’s centres and the fall in the number of childminders.  

Given the looming crisis, the Government should sit down with childcare providers and local authorities to take stock and map a way forward. Childcare is key for the future of Britain and for the future of children and families. But the lack of sufficient funding for the thirty hour offer could be the straw that breaks the camel’s back.

Many children risk missing out on key early education and childcare. And the extended family will pick up the pieces as grandparents and others who are already working themselves will be asked to help out with childcare.

Who will sort this out?   


Stephen Burke is director of Good Care Guide and United for All Ages

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