Investment companies and the future of early years

A story this week about nurseries backed by investment companies shows the unequal childcare landscape in England. But what is the potential impact on parents?

Nursery worker with child


Amid all the concerns about nurseries closing due to long-term underfunding of subsidised care, a story out this week claiming some private nurseries are poised to make big profits might seem a bit incongruous. Research by the Guardian and the Joseph Rowntree Foundation (JRF) in collaboration with investigative accounting firm Trinava Consulting shows nurseries backed by investment companies – including private equity firms, asset managers and international pension funds – reported double the profits of other private providers and seven times those of non-profits in the period between 2018 and 2022.

The report suggests big private chains backed by international private equity and other funds are looking to take advantage of the current parlous state of early years. Because the chains have lots of money they can afford to take risks that other nurseries can’t take. We know from talking to nurseries that it is the smaller, community nurseries that are often most at risk of going under because they are much more restricted in how they can make up shortfalls in government funding. Independent nurseries which are not part of chains are also more vulnerable because they cannot cross-subsidise nurseries in more disadvantaged areas with earnings from those in richer areas where many are charging for extras.

We know that some areas of the country are becoming what is known as ‘childcare deserts’. These are usually in the North and Midlands and this is likely to act as a barrier to work for many parents, particularly women who traditionally take on the main responsibility for children.

There have been concerns that extending the subsidised childcare to more children – to two year olds and, later this year, to nine months olds – will make matters worse because nurseries will have less room for manoeuvre on fees. Some have been increasing charges for younger children to make up for the shortfall for three and four year olds. In his Budget, the Chancellor said he would fully fund the extension of free hours to two year olds, but we await the detail. That still leaves the historic underfunding of places for three and four year olds, the biggest age group of children in early years education.

Something needs to change. Innovation is coming from platform-based organisations which seek to match parents and childcare providers, but they currently tend to focus on wealthier areas too. The big money is also chasing these. There was a big conflict of interest story recently when it was revealed that the Prime Minister’s wife Akshata Murty, at that point director of venture capital fund Catamaran Ventures, had major shares in one of these platforms/childcare agencies, Koru Kids. This was at the same time that the Government was proposing extra cash for childcare agencies. Murty has since donated her shares to charity.

The financial companies are interested in early years in the same way they are interested in care homes – because there is a constant need for them. But their focus is on profit – and while they are taking risks now, there is always the danger that the risk doesn’t pay off and nurseries, like some care homes that have seen private equity investment, go to the wall. Where does that leave parents who rely on childcare to work and whose children need early years education to get a good and more equal start in life?

It’s a complex picture, with some arguing that big chains can achieve economies of scale, but education is surely something that should be a national asset and one which Government controls because only it can truly have the national perspective. There may be a role for private finance and innovation in there, but that role needs proper regulation and accountability. We cannot afford to play money games with something as fundamental as early years education.

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