The world of high finance may seem an unfamiliar one to parents or to workers in nurseries. But over the past ten years, there have been remarkable changes in the way nurseries are financed and managed. Increasingly, stocks and shares and venture capital have come to underpin and reshape early education and childcare services.
Corporate nursery chains in particular are big business, worth millions of pounds. Of the top ten providers of nursery places in the UK, nine are listed on the stock exchange or owned by private equity groups.
Three of these are owned by foreign investment groups - one from the US, one from Australia and one from India. It is a safe bet that some of these big nursery chains will change hands in the next year, and smaller nursery chains will be swallowed up by bigger ones, as investors jostle for a share of what has become a potentially lucrative market.
Only this month, the world's largest nursery provider, Australian-based ABC, bought its second chain of UK nurseries. ABC already owns the Busy Bees group and its acquisition of Leapfrog's 88 nurseries, from Nord Anglia for £31.2m, makes it the largest UK provider, with 134 settings and around 12,500 childcare places.
Nursery World and its supplement, Nursery Chains, give a faithful picture of the scope of the changes taking place. But even so, surprisingly little is known about the impact of all these changes.
Currently the private for-profit sector delivers three-quarters of daycare provision in the UK. In particular, the UK corporate for-profit childcare sector has grown seven-fold since 1997. In Australia, since the early 1990s the growth rate of for-profit childcare provision has been eight times that of not-for-profit services.
Public-private finance
This expansion of business through the private sector is not a phenomenon that is unique to early education and childcare. Almost every public service is now underwritten by public-private finance initiatives. Governments hand out subsidies and contracts, and the private sector delivers the services. The Government argues that the private sector invests much-needed capital and delivers services more quickly and efficiently than the public sector.
But on the other hand, funding from private equity firms and venture capital are problematic because their operations are not subject to the same stringent regulations as other financial dealings. There have been a lot of questions in Parliament and elsewhere about how private equity companies conduct their business and make their profits.
In health and education, private financing arrangements are very common. Consumers are not always aware of the financial background because the services are free at the point of use. But parents who use nurseries are more vulnerable. Even with Government subsidies, parents pay for childcare. And they pay more than anywhere else in the world. A recent Citigroup investment report compared investment opportunities in nurseries in Australia, the US and the UK.
In Australia and the US, parents pay around 15 per cent of their disposable household income on childcare, whereas in the UK the figure is around 28 per cent. Similarly, the Citigroup report points out that childcare workers get paid a lot less in the UK relative to fees.
These differences are partly due to our regulatory structure. We have held on to our staff-child ratios, which are very generous, but parents and childcare workers pay for it in higher fees and lower wages; and low wages in turn means that the job of childcare attracts less skilled or less committed staff. This raises the very uncomfortable question of whether our attempt to maintain quality through regulation has overall had a negative effect.
In Canada, on the other hand, until recently, it was unusual for government money to be used to subsidise for-profit care. Only non-profit groups could claim subsidies, which dampened the expansion of private chains in Canada and led to an expansion of the voluntary sector. A new report by economists at the University of Toronto claims that non-profit care is usually higher quality, because where there is no competition, such as in poor or rural areas, there is no incentive for for-profit providers to improve what they offer.
The growth in private for-profit childcare and early education in the UK was based on the assumption of rising demand from mothers entering the workforce. But female employment rates in the UK have not expanded as predicted. In particular, the Government hoped that many more single parents would work. The combination of lack of take-up of childcare places, and rising property prices, is putting a great deal of pressure on the corporate sector and on single traders (people who own one or two small nurseries) to trim their plans of expansion.
The level of Government subsidy is a key factor in enabling businesses to continue. But at the same time, increased subsidies also contribute to the profitability of the biggest companies, and make them an attractive prospect for investors. According to the Citygroup report, investors should expect a minimum return of 7 per cent on their investments - a very high rate of return!
Mixed economy
At the University of East London we are working with our business school to try to understand these complicated issues. We have set up the International Centre for the Study of the Mixed Economy of Childcare (ICMEC). We hope to work with regulators and providers across the spectrum to study and map these new developments from an international perspective. These are some of the questions we want to ask.
- What is the impact of corporate childcare? Is it a good product that is increasing in value? Does it have particular consequences for consumers?
- How do public-private partnerships in childcare work in different countries?
- What kinds of economic and regulatory factors lead to high fees for childcare?
- What kinds of economic and regulatory factors lead to poor quality childcare?
- How can corporate companies respond to local needs/communities?
- What kinds of factors lead to instability and high turnover of providers and staff?
- Is the impact of public-private partnerships different in poor and wealthy areas, and on poor and wealthy families?
- What are the economic and commercial pressures on government in shaping early childhood education and care policy?
Like any big and sudden changes, the financing of childcare and early education needs monitoring. But, as the Citigroup report demonstrates, parents and children, and the staff who care for the children in nurseries, are at the receiving end of trends they may know little about. The development of the nursery chains and a burgeoning corporate sector may be a good thing, but at present the jury does not have enough information to go on in arriving at such a verdict.
Early education and care has been until now a matter for the DfES, but these issues also now fall into the lap of Stephen Timms, the minister for Competitiveness at the Department of Business, Enterprise and Regulatory Reform. He is coming to talk at the launch conference of ICMEC on 10 September, along with sector representatives. We look forward to hearing what he has to say. NW
Helen Penn is Professor of Early Childhood and Eva Lloyd is Reader in Early Childhood at the School of Education, University of East London. Both are co-directors of ICMEC
FURTHER INFORMATION
- Details about the International Centre for the Study of the Mixed Economy of Childcare (ICMEC) and the launch conference can be found on www.uel.ac.uk/icmec.
