CEY1305
Written evidence submitted by Professor Helen Penn and Professor Eva Lloyd, International Centre for the Study of the Mixed Economy of Childcare, ICMEC, University of East London
We welcome the opportunity to submit evidence to the Education Select Committee Inquiry into Childcare and the Early Years. We represent the International Centre for the Study of the Mixed Economy of Childcare, ICMEC (https://www.uel.ac.uk/our-research/research-school-education-communities/international-centre-study-mixed-economy-childcare-icmec) at the University of East London.
ICMEC is a multi-disciplinary research centre established in 2007 which focuses on policy research on accessibility, affordability, quality and sustainability of early childhood education and care systems in a marketised childcare economy. We have been concerned about the way in which the childcare market affects the life chances, development and economic wellbeing of young children living in families experiencing disadvantage.
We consider the childcare market has proved to be profoundly inequitable, and we have detailed this in publications and seminars. We have explored ways in which the market could be better regulated and changed to promote more equitable services, by critiquing the existing system and exploring alternative models (Lloyd and Penn, 2012; Lloyd, 2019).
The terms of reference in the Education Select Committee Inquiry’s Call for Evidence invites respondents to suggest solutions to a range of challenges and problems affecting the current childcare and early years system in England. We would argue that these are not separate issues, but they are essentially linked within a ‘…dysfunctional market failing those that need it most’ (Archer and Oppenheim, 2021, p. 3). Compared to the rest of Europe, England is an outlier in terms of the disorganisation and paucity of the childcare and early years services available to young children (European Commission/EECEA/Eurydice, 2019, OECD 2019).
Our argument is that the childcare market has failed so badly that it can no longer be tinkered with or adjusted but needs fundamental reform. Based on the evidence, we argue for a coherent publicly managed system, in which all children aged 1 to 5 should be entitled to a place, following on from adequately funded maternity and paternity leave periods covering their first year of life (Lloyd, 2020).
i) The current situation
Most under-fives in England who attend early childhood education and care provision do so in the private-for-profit childcare sector. This applies to receipt of both 15 and 30 funded early education hours. The private-for-profit sector also provides for childcare hours over and above the funded hours, and for younger children. (DfE, 2022a; DfE, 2022b). The public sector provides less childcare and early years provision within maintained nursery schools and primary school nursery classes than the private sector within the English childcare market.
There is ample evidence to suggest that the most disadvantaged families are the least likely to access childcare (Albakri et al., 2018; Archer and Oppenheim, 2021). A good system of childcare and early education should be inclusive and equally accessible to all children, including those with special educational needs and disabilities, children whose first language is not English and children from disadvantaged communities. Among the last group of children, those from Black, Asian and minority ethnic communities are disproportionally represented.
ii) Regulation
The childcare market is regulated by Ofsted, but its information is inadequate. To date Ofsted childcare provider registration data do not allow a distinction to be made between private-for-profit and not-for-profit providers. Neither do their data indicate the size of the commercial enterprise involved, whether one setting or 300. These omissions interfere with adequate policy analysis of the implications of these statistics (Simon et al., 2022). Given the cost of childcare, it would be reasonable to expect that, like other regulators of services dependent on public funding, Ofsted has a view on value for money. But it does not collect information on the fees charged by the settings it inspects.
iii) Distortions of the market
Our recent research (Simon et al., 2022) suggests that the market is no longer competitive or flexible or innovative – the reasons for supporting it – but is badly skewed and is vulnerable to collapse. The childcare business in England is now dominated by large financialised childcare companies, which fund their expansion with national and international private equity investments. While such companies continually expand and consolidate their provision through mergers and acquisitions, they are seriously in debt to their investors as well as needing to pay their shareholders dividends. As a result, they have low to no financial reserves, placing them at risk of collapse.
In 2021, 70% of group-based childcare places were provided by large, financialised companies, 13% of which are currently overseas based. So, most childcare places are provided by nursery chains who determine their policies at a company, rather than at a local level. Not only are their childcare fees high relative to those in other OECD member states (OECD, 2020), but over the last few years the total number of places in England has not increased despite these market dynamics. The pandemic has exacerbated these market trends (Lloyd and Simon, 2022).
Financialised companies are now a feature of UK service delivery, not only in childcare, replacing local authority services or government services in many areas, including adult (Kotecha, 2019) and children’s social care (CMA, 2022). A financialised company governs its actions by financial yardsticks, such as profits, stock prices, and shareholder returns. The debts incurred by their expansion can be written off against tax. Typically, these companies are run by highly paid financial executives rather than by childcare specialists. To maximize profits they may try to reduce staff costs as a percentage of the outgoings of the company. Instead of up to 80% of outgoing spent on staffing, as would be the case in the public or charitable sector, staffing costs may be as low as 55% of outgoings.
This growth of company childcare provision is accompanied by outsourcing. The supplementary work of childcare is frequently outsourced to specialised financial and management advice, software developers, childcare property sales specialists, market research, training and consultancy firms, recruitment agencies, toys and equipment firms, catering agencies, and so on. There is also considerable emphasis on branding.
Companies are vigilant in maintaining their public image and in our experience may be litigious in pursuance of their reputation. The power of the company perspective is that individual nurseries – and individual staff – within the nursery chain have very little autonomy or voice. There is little accountability for company actions, other than to investors. Running a childcare company becomes a distanced managerial exercise in distributing resources and realising profit, and less of a direct concern with children (Gallagher, 2021).
The sustainability risks associated with private equity investments in childcare markets have for some years been of concern to several European governments, including in the Nordic countries (Sivesind, 2017), but not in the UK. However, one recent development may herald a burgeoning interest in the role of hedge funds and other private equity providers within the British economy. This is the Bank of England’s December 2022 announcement that early in 2023 it will design stress tests for non-bank financial institutions’ lending, such as that by hedge funds and private equity firms (Olmos, 2022). This follows fears this not stringently regulated industry could put the UK’s financial stability at risk,
iv) Funding models
The funding model for the English childcare and early years system has an awkward interface between supply-side subsidies for providers in the childcare market to deliver the funded hours of early education to 3- and 4-year-olds and 2-year-olds who need it most, and demand side subsidies available to help parents with additional childcare costs via the tax or benefits system. There are several major problems with this funding model.
One, while the government’s funding of the early education and childcare entitlement for 2-, 3- and 4-year-olds has grown considerably during the last decade, funding for parental childcare support through the benefits system has lagged far behind (Farquharson, 2019). During the pandemic the number of families with young children experiencing financial problems has risen substantially (La Valle et al., 2022)
Two, exacerbating this situation is the fact that childcare support through Universal Credit is paid in arrears. For low-income families to find full childcare fees upfront, alongside costs like registration fees, is virtually impossible. This aspect of the system was described as a fundamental flaw in the 2018 Treasury Committee report on childcare (HoC Treasury Committee, 2018).
v) The workforce
The quality of the childcare and early years workforce is essential to achieving quality provision. Several recent childcare workforce studies (Christie & Co 2019; Bonetti, 2019; Haux et al., 2022) point to low pay, low qualifications, and relatively poor recruitment and retention, and very little unionization within the private sector childcare workforce. Haux and colleagues also investigated the workforce in relation to areas of deprivation.
There is a huge divide between the pay and employment conditions of the qualified early years teachers and teaching assistants working in public provision and the private childcare sector workforce. Research into childcare quality shows a direct link between workers’ qualification levels, their pay and conditions and service quality. The more qualified and better paid the workers, the better the educational and care experience children receive.
A recent OECD report (OECD, 2019) indicates that a supportive work organisation, along with high order initial and in-service training is an important factor in improving recruitment and retention and in providing a high-quality service for children. These conditions are mostly lacking in commercial childcare.
DfE workforce surveys to date (DfE, 2022b) are limited in that they have implicitly assumed a workforce model, whereby nurseries are free-standing, representative of the area where they are located and have autonomy over their own workforce plans. Large companies do not operate in this way, and company policy is decided at headquarter level, with profitability as a prime consideration. Sampling respondents for qualitative workforce surveys, such as by Haux et al. (2022), may therefore be misleading. Research in this area would need to take account of market structuring to provide a more accurate picture.
vi) Children with Special Educational Needs and Disabilities
For children with special educational needs and disabilities (SEND) the availability of places depends not on need or equity, but on commercial priorities. The decisions about where to locate the nursery business, when to open it, and when to shut it down (as not infrequently happens) is not dependent on local need but on business viability as determined by owners.
This is complicated by lack of clarity about the range of disabilities for which support is needed. The organization Special Needs Jungle, run by parents, offers parent led information, resources and informed opinion about negotiating labyrinth of special needs diagnosis, assessment, and support. A DfE commissioned qualitative survey of parents confirmed the struggle parents had to recognize and categorise disability with their young children, and to seek help and support, in such a confused system (DfE, 2022c), as did a study by Griggs and Bussard (2017).
In principle, if a child has an identifiable special need, under an Education Health and Care Needs Assessment (EHCNA) the local authority has a duty to fund placements and to offer support. But not only is there a waiting list for assessment, and a shortage of supported places, there is also gross shortage of the specialists deemed necessary to support young children. A coalition of a 100 organisations concerned with special needs and led by the Royal College of Speech and Language Therapists recently issued an open letter to the Government calling for more support workers – including Early Years SENCOs, play therapists, parenting coaches, education audiologists, dieticians, physiotherapists, family workers and orthoptists (Morton, 2022).
In the absence of a coherent system of identification, a shortage of specialists, and of readily available places, there is a scramble for resources. The number of referred special needs children has grown by 14% since 2016 (DfE, 2022c). This increase has been partly attributed to Covid, but it might also be due to hard-up schools are pressing for referrals to try to collar the resources that come with assessed children.
The private market has also grown to exploit the gap. It offers places to local authorities who have no available places of their own, and/or for those parents who can pay the fees. The property firm, Knight Frank provides an overview of childcare and special educational needs as a guide to the investment market (KnightFrank, 2022). They claim that, overall, within the UK education system there are at least 1.370.000 children with SEND, and the market for providing for them is worth approximately £4 billion.
Our argument is that to provide a fairer service to all children, especially those with special educational needs and/or disabilities, and to deal with workforce issues of quality, recruitment and retention, the system’s business model needs to be fundamentally rethought. It is simply not acceptable, in difficult times, for large companies to be making substantial profits out of childcare, and children’s access to childcare to be dependent on their business decisions.
We need a fairer and more comprehensive system to address the profound unfairness and anomalies within the system of early childhood education and care. Some curbs on the financialised childcare sector are suggested in our research report (Simon et al., 2022). These include a supply side rather than a demand led funding system, with subsidies only going to those companies whose level of accountability is like that expected from not-for-profit childcare businesses by the Charities Commission.
We also think there should be much more investment in nursery education attached to schools, so that changes can be properly embedded in the state education system. We see a need for a greater strategic role for local government. Finally, in our view, simply raising demand led government subsidies for childcare and early years would be a waste of money, and only lead to further entrenchment of a socially stratified company business model.
References
Albakri, M., Basi, T., Davies, M., Forsyth, E., Hopwood, V., Patel, R., Skipp, A. and Tanner, E. (2018) Take-up of free early education entitlements. Research Report. London: DfE. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/738776/Take-up_of_free_early_education_entitlements.pdf
Archer, N. and Oppenheim, C. (2021) The role of early childhood education and care in shaping life chances. The changing face of early childhood in the UK. London: Nuffield Foundation. Available at: https://www.nuffieldfoundation.org/wp-content/uploads/2021/10/Role-early-childhood-education-care-life-chances-Nuffield-Foundation.pdf
Bonetti, S. (2020) Early years workforce development in England – key ingredients and missed opportunities. London: Education Policy Institute. Available at: https://epi.org.uk/wp-content/uploads/2020/01/Early_years_workforce_development_EPI.pdf
Christie & Co (2019) Early childhood education & care: workforce trends & associated factors. London: Christie & Co. Available at: file:///C:/Users/evall/Downloads/Christie%20Co%20ECEC%20Report.pdf
Competition and Markets Authority (2022) Children’s social care market study. Final report. London: CMA. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1059575/Final_report.pdf
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Department for Education (2022c) Special educational needs and disability: an analysis and summary of data sources. London: DfE. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1082518/Special_educational_needs_publication_June_2022.pdf
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January 2023
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