How Governments Can Crack Down on Nursery Chains Raising Costs for Parents

The Growing Concern Over Private Equity in the Nursery Sector

The nursery sector in the UK has seen a significant shift in recent years, with large chains backed by private equity firms gaining a growing share of the market. This trend has raised concerns among industry experts and parents alike, as it could lead to higher costs for families and potential instability in childcare services.

Market Expansion and Profit Motives

From 2018 to 2024, the market share of nurseries backed by investment companies has doubled, indicating a rapid expansion. While these chains may be more efficient in their operations, they are often focused on maximizing profits rather than providing affordable care. This has led to worries that the increasing presence of private equity in the sector could result in price surges and a lack of availability in certain areas.

In some parts of London, the cost difference between a private equity (PE) nursery and a non-PE one can be as high as £700 for full-time care. This discrepancy highlights the potential impact on families, especially those in lower-income brackets who may struggle to afford quality childcare.

Risks of Financial Instability

Experts have warned that the financial strategies of these large nursery chains can be risky. Many carry significant debt and operate under volatile financial models, which could lead to sudden collapses. This pattern is reminiscent of what was seen in the UK care home sector, where financial mismanagement resulted in service disruptions and government intervention.

A 2022 report by UCL’s Social Research Institute highlighted the dangers of such financial practices, noting that the collapse of Australia's largest early years provider, ABC Learning, in 2008 left over 1,000 nurseries at risk of closure and forced government action.

Government Response and Potential Measures

The Education Secretary, Bridget Phillipson, has acknowledged the need to monitor the situation closely. She stated that the government is keeping an “eye” on the consolidation and expansion of larger nursery providers, particularly in light of the issues seen in children’s social care.

Phillipson mentioned that the government is considering measures similar to those being implemented in other sectors, such as giving Ofsted increased oversight of the financials of big early years chains and introducing an early warning system to detect potential collapses.

Additionally, the Department for Education (DfE) is working to increase capacity by subsidizing schools to open their own nurseries and supporting smaller early years providers. The DfE’s strategy, published in July, notes the rise in private equity investment and the decline of childminders and voluntary providers.

Industry Perspectives and Concerns

Sarah Ronan, executive director of the Early Education and Childcare Coalition, pointed to the role of underfunding by successive governments in creating an environment where private equity firms can take over struggling independent businesses. She explained that these firms often centralize core functions to reduce costs, something smaller providers cannot easily replicate.

On the other hand, the British Private Equity and Venture Capital Association argues that these firms invest in and improve the businesses they back, leading to sustainable growth and job creation.

Rising Prices and Affordability Issues

Research by UCL shows that the number of places provided by PE-backed nurseries has nearly doubled since 2018, from 4% to 8% of the sector. This growth has sparked concerns about affordability, as these nurseries often charge “incredibly high prices” for additional hours beyond those funded by the government.

Professor Eva Lloyd of the University of East London emphasized that private equity investment is not subject to the same regulations as traditional bank loans, making it harder to ensure fair pricing and accessibility.

Neil Leitch, CEO of the Early Years Alliance, stressed that any funding model for nurseries should not distort early years prices for the sake of profit. June O’Sullivan OBE, CEO of the London Early Years Foundation, highlighted the benefits of the social enterprise model, which supports local communities.

Conclusion

As the nursery sector continues to evolve, the government remains vigilant about the potential risks associated with private equity involvement. With ongoing monitoring and possible regulatory actions, the focus will remain on ensuring affordable, stable, and accessible childcare for all families.