Nursery market hype is hiding an inconvenient truth

And that the childcare business is booming in 2022 and will do so beyond that. Beware, I say, is this another case of the emperor’s new clothes?

Yes, the childcare sector has been remarkable in its survival against unprecedented pressure and unpredictable social and economic conditions. Anyone that has led a setting during recent months has my full and unyielding respect for that. Sustainability has so far been supported by full payment of early years funding throughout the most difficult months of lockdown. That isn’t the case now of course. But that is only half the picture. All types of settings rely upon paid-for childcare fees to balance the books of their business models, and not all services are fundable as early years, not least babies, pre-twos, and out-of-school childcare for the over fives. 

Demand and ability to pay for childcare reduced significantly in the early days of the pandemic, disappearing completely for some, and it has slowly and steadily started to return to pre-pandemic levels. But many families are rethinking their working patterns, locations and preferences, and are reprofiling their childcare needs to suit, all within the context of fast rising costs of living.  

No one knows for sure how the dust will settle, and when. There are areas and indeed settings that have bounced-back well, grown even, some have plateaued, and some have yet to see recovery anywhere near what is needed for their long-term sustainability. Clearly, we have some winners and some losers. For some this is luck, the toast has landed butter side up, others haven’t been so fortunate.

These factors all result in further squeezes to the financial margins and realities of operating childcare businesses, and the emotional and physical resolve of those charged with leading and managing them and what appears to be a weakening workforce. Settings can become constrained, tired, stressed and trapped in a whirlwind of workforce capacity, financial pressures, and operating restrictions. 

Step forward the new money. The opportunities have been growing for those concerned with expanding their chains and using the funds of global and/or equity fund investors to reap healthy pay-offs in the future.

We are told £500m plus was the value of acquisitions last year, I think that is an underestimate and the tip of quite a large iceberg that has broken away from the arctic shelf. It is the voices of investors that tell us the market is booming.  What they are saying is their businesses are benefiting from these market trends. There is little doubt this will continue as more and more settings reach the point of no return, and the top chains grow and grow as a result of taking them on. 

Now, I am all for change, for market forces, and for settings adapting and developing their models to best suit what is needed and demanded. 

I welcome chains and their contribution to the sector. I can see the merits and the more sensible features of them like overarching management, training and development, and quality improvement. But there are caveats, I worry what this could be masking and what the risks are when what could happen next actually happens.  

Location, location, location will be vitally important as market demands shift. Some settings are more able to move nimbly towards geographical needs, others cannot. And so, we will see more openings and more closures. All this whilst the sector becomes even more polarised in its diversity. 

How can you compare a home-based childminder with a multi-national multi-million-pound operation? You can’t. 

In the longer term I wonder how sustainable this all is. Will we see the collapse of the sector in isolated or low-income communities and will we see the demise of the community pre-school?  

Will this occur concurrently with the rising dominance of a nationalised sector run by the private sector?  

And what would happen if one of them was to fold? Whatever next, someone somewhere needs to be thinking the long-term implications through very carefully because we could be storing up lots of trouble for later. 

James Hempsall is director of Hemsall’s consultancy