The childcare costs debate

Lowering the ratio of staff to children is unlikely to result in lower childcare costs, according to a leading childcare specialist.

childminders looking after kids


Philip Blackburn, a consultant business economist who works predominantly with social care market research organisation Laing & Buisson, says that relaxing ratios will mean nursery staff will require higher level qualifications. This would lead to rising staff costs cancelling out any saving from lowering ratios.

“I’m not sure there would be any winners,” he says.

“What will save nurseries,” he says, “is the subsidised funding for two year olds.” He added that analysis by Laing & Buisson showed the number of under threes in nurseries had dropped quite significantly in recent years, but the number of three and four year olds had increased.

The funding for three and four year olds did not always cover the whole cost of childcare which meant other children had to pay more, but the rate set for two year olds would be comprehensive. By 2013/14 around 40%of two year olds are expected to qualify for the subsidy.

Blackburn says tax credit changes have impacted on nurseries and the situation was unlikely to improve much. Recent announcements that people working fewer than 16 hours would get tax credits would simply replace earlier cuts which reduced the percentage of subsidy from 80% to 70%, resulting in a “zero sum game”.

“There has been a clear fall in tax credits funding nursery care in recent months,” he says, “and that is a worrying trend. The recent announcement of cover for people who work below 16 hours a week will only mean a change in the distribution of those who are covered by tax credits.”


He added that employer contributions to childcare, in the form of childcare vouchers, were increasingly helping to cut childcare costs for parents. Vouchers now represent 30% of market funding compared to 6-7% 10 years ago, he said, adding that increased take-up was partly due to greater awareness among parents of voucher schemes.

Blackburn, who has been working on Laing & Buisson’s childcare report which is out later this week, says it will show that, contrary to media reports, nursery fees grew below RPI inflation in the last year. “This is good news that nursery fees are not rising out of hand any more,” he states.

He added that, again contrary to media reports, most nurseries were keeping their heads above water and that the recession had “weeded out the worst performers”. The nurseries which were vulnerable tended to be in the public sector, for instance NHS nurseries, as they had to justify their budgets when cuts were being made across the public sector.

Blackburn, who has written a chapter on future directions in the UK childcare market in the recently published book “Childcare Markets”, says that the nursery market remains highly fragmented, but that small nursery groups in particular could be looking to expand in the future despite the precarious economic conditions and the fact that, after years of steep increases in the number of working mums, demand for childcare had levelled off. Demand had also been affected by tax credit cuts and the squeeze on family incomes.

Childcare providers were likely instead to focus more on adding value, differentiating themselves from the competition by providing, for instance, extra IT activities, organic food or on-side paediatric care. They may demand more money for such “higher quality” care in more affluent areas, he said, but in a competitive area they may just offer extra services at no additional cost.

Blackburn says more nurseries might offer flexible hours if the demand for them grew to a level which made it make business sense. “Perhaps momentum is building and there will be innovations around the logistics of providing childcare more flexibly rather than in blocks organised around staffing levels, as happens now,” he says. “The problem is that nurseries are still wired around full-day provision and they only tend to be flexible when occupancy levels are fairly low and they have free capacity. Being flexible is not necessarily profitable.”

*Childcare markets: can they deliver an equitable service?, edited by Eva Lloyd and Helen Penn is published by Policy Press. It includes a comparison of the childcare market in a range of different countries.

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