The current position...
Formal childcare in Wales has always differed from the provision and funding models experienced by nursery operators over the border in England. To some degree this has prevented the expansion of corporate day care provision in Wales as experienced providers in England are wary of entering the Welsh market, due primarily to these funding differences and the separate regulatory bodies which oversee the sector in Wales.
The majority of private nursery provision in Wales is provided by independent operators with a single setting and the main group operators have grown organically from within the region. It could be argued that the current situation in Wales has resulted in an inflexible system for working parents and lack of appetite from childcare providers to invest in providing good quality childcare resulting in fragmented and limited choice when looking for a nursery place for their children.
Children in Wales start school in the September of the year in which they are four which is a year earlier than their English peers. All three-year-olds in Wales are entitled to part-time nursery provision which is funded by the Welsh Government for just 10 hours per week (as opposed to 15 hours in England) and is primarily provided via maintained nursery schools in between the hours of 9.00 until 11.30am or 12.30pm until 3.30pm, five days a week. This is evidentially not helpful and a logistical nightmare for most working parents and makes the Welsh market less attractive than the English market for operators as the majority of three-year-olds receive their free childcare entitlement in schools rather than private day nurseries.
Where demand outstrips supply for this entitlement, private nurseries can tender for contracts to supply this provision but the parent does not have the freedom of choice to decide on which nursery their child can attend. It also produces an unequal playing field amongst providers as one nursery will be able to receive the grant funding but another may not.
In the most deprived areas, the Flying Start
programme provides two and three-year-olds with 12.5 hours of childcare and education which is available across 42 weeks per year but this is still inflexible for working parents and not a universal offering. Private operators can again tender for these contracts but the childcare is generally provided in local community centres, for example, on yearly contracts offering little security.
Then there is the issue of regulation. A Welsh nursery is regulated by the CSSIW (Care and Social Services Inspectorate Wales) and not by Ofsted as in England. In addition to this, if a nursery receives funding via the Welsh Government to provide the 10 hours of free childcare within the private sector, they are then also inspected by Estyn (Her Majesty's Inspectorate for Education and Training in Wales). As you can imagine, for a sector already highly regulated this is not an ideal scenario however since 2016, joint inspections are now carried out which does reduce duplication of effort and resources.
In England, the childcare sector is more open to market forces and parents can choose to use their entitlement of 15 hours of free provision in pre-schools, with childminders, in private and voluntary nursery schools or within the maintained sector. The 15 hours allowance can be used flexibly by parents and not just for 2.5 hours a day and they can spread the allowance out across the year or use it just in term-time. This approach is far more helpful for the working parent and arguably helps parents enter the workforce. The nursery operators are also in a more secure position which drives demand for businesses and promotes growth and investment in the sector.
In England, from September 2017 the current 15 hours of early years education entitlement for all three and four-year-olds of working eligible parents will double to 30 hours. As a result, we are expecting occupancy levels within nurseries in England to increase significantly. The response from existing nursery operators has been mixed with regards to the funding levels and the cost of actually providing these ‘free’ additional hours.
This trepidation has not been transferred into the market and we are seeing increased demand from buyers looking acquire within the sector. The traditional buyer pool is expanding with investors now looking at the childcare sector as providing a good return on investment and being relatively secure as it is now being government-backed to a degree. This is evidenced by analysing recent transactions: Christie & Co saw a 9% increase in prices during 2016 in comparison to prices achieved in 2015 and during this year we advised on childcare and education assets with an aggregate value of circa £1.1bn.
The picture may be changing in Wales...
The Welsh Government has announced a £10m investment to pilot a 30 hours free childcare offer from September 2017 within specific locations in six Welsh counties (Gwynedd, Anglesey, Flintshire, Swansea, Blaenau Gwent and Rhondda Cynon Taf). The entitlement will be for working parents of three and four-year-olds for 48 weeks of the year.
It could be argued that the Welsh Government will have to utilise the provision afforded by the private and voluntary sector in offering this additional childcare, as the cost of delivering extra hours in schools would be very high. There are also capacity issues in many schools and they are inflexible in their operating hours.
The National Day Nurseries Association (NDNA) has urged that private and voluntary nurseries be included in the pilots. Its Chief Executive Purnima Tanuku said
, “The Welsh Government’s plans for extending funded childcare are the most ambitious in the UK as the scheme will cover 48 weeks of the year.
“This is great news for working parents and their families, but vital that all types of childcare provider are involved in order to be able to deliver this vision.”
How these developments could affect the childcare market within Wales remains to be seen but if the Welsh Government is moving towards a more universal open market approach to childcare provision we could argue that the market would become more attractive to buyers and investors. We are already seeing more enquiries from buyers who are looking towards to the South West and South Wales regions for available opportunities as demand for well-run childcare businesses outstrips supply in the South East of England.
We will be eagerly watching for developments in the Welsh market during 2017 and 2018.