Christie & Co comments on findings of SEED research report
Jennifer Gill MRICS, Valuer – Childcare & Education at Christie & Co has reviewed the study and highlights key findings and our opinions.
On 27 January 2017 the Department for Education released a report entitled ‘Study of Early Education and Development (SEED): The cost and funding of early education’. Sam Blainey and Gillian Paull of Frontier Economics undertook the study over the period of April 2015 to December 2015.
A total of 214 childcare providers were contacted to undertake the study, however just 116 provided evidence in the final research. The research respondents included 69 private day nursery providers, 28 voluntary establishments, 24 childminding operators and the remainder comprised nursery classes, maintained nursery schools and local authority/children’s centres. The sample size equates to less than 0.1% of the market and in our opinion, is noticeably small and thus not a true reflection of the national picture.
Alongside location, capacity and local market dynamics and drivers, the very nature of different types of provider will naturally have an effect on the cost of childcare. Charitable or voluntary establishments which operate on a not-for-profit basis, of course may be less stringent with their costs when compared to a sole trading childminder or a private children’s day nursery. Comparing different operations on a like for like basis is unlikely to portray the daily operational costs incurred fairly.
The Research Time Frames
The research was conducted between April and December 2015. At the time of writing, almost two years have passed since the study commenced and significant changes to the sector and wider market have been experienced. Notably, but not in isolation, the introduction of the National Living Wage, the UK’s decision to leave the EU, general changes across the wider property market, and not to mention changes which are imminent which include business rates revaluations and the introduction of 30 hours of government funded childcare. When reflecting upon the time lag between consultation and publication of the research findings, the timeframe is excessive and the longevity of the report has potentially already expired.
Since the study was conducted, the National Living Wage has been introduced - something which had a huge impact on some operators. In particular the effect was felt by those who were unable to mitigate some impact of the increased levels of salary expenditure by offsetting such against fee increases.
Again since the time of the consultation, the wider UK property market has improved and high quality day nurseries and the D1 premises from which such can trade have become increasingly sought after. This has generally been positive for the sector with additional interest from investors, regional operators who are looking to expand, new entrants to the sector and increased bank support. However due to the wider property market improvements, those operators providing day care from rented property, with rent reviews experienced in the last 12-18 months, are likely to have seen an increase in rent and other premises costs. Comparing these operators with childminders, whose childcare premises ordinarily comprise their own residential dwelling, does not fairly portray a level playing field on which different types of providers’ costs can be analysed. The same differential can also be evidenced when considering voluntary establishments and state operated nursery classes or children’s centres, where preferential rents and all inclusive utility costs may be experienced.
The sample of settings was drawn from an earlier study (SEED) and other earlier studies have been incorporated within the subject studies. However the main study conducted between April-December 2015 comprised 166 visits to different establishments, where cost and revenue data was collected using semi-structured face to face interviews. The report notes that in general, setting managers were involved in these interviews.
When reflecting upon this process we query how many of the managers were owner-managers and how many were setting managers. From our experience of inspecting circa 1,000 nurseries annually for a wide range of business appraisal purposes, we are aware that generally non owner-managers have little involvement in the financial monitoring of the business. This is due to their day to day focus generally being on the care and education of the children within the setting and as such we query the accuracy of the responses. This of course is generally not the case for childminders who are in the main sole traders.
Our concerns relating to the accuracy of financial and operational information provided by some respondents are potentially well founded. Throughout the report there is a significant amount of information which has been estimated and imputed by the researchers. We query whether this is due to the majority of managers not having involvement within the financial monitoring of the business and thus being unable to divulge the correct information to the researchers in the first instance.
The study finds that the average total weekly operating cost for a setting is £4,747. We have created a table of the findings below:
Number of Settings
Average Weekly Cost
|Private day nursery||68||£6,307||75%||14%||11%|
|Maintained nursery school||10||£11,144||78%||10%||12%|
• We note that 46% of all rental information and 46% of all salary information was not provided and as such, imputations to the study were made. We understand that this information was inputted by the analysts and we would imagine with some regard to market trends, however this is still not actual data and thus, in our opinion, allows for very little validity.
• The mean hourly delivery cost per child is £4.58 for children under the age of two; £4.30 for two year olds; £3.72 for three/four year olds and £3.91 for school children.
• The study shows that childminders have the lowest weekly costs but the highest venue costs. 29% of venue costs for childminding businesses and 75% of salary information was not divulged by childminders; this missing information was inputted.
• When considering the nursery class data, 83% of the settings surveyed had data inputted for venue costs and 50% of salary information was also inputted.
• Overall, voluntary establishments had the lowest amount of data imputations. 29% and 39% of settings did not provide data regarding venue costs and salary costs respectively.
• 68 private day nurseries were involved within the study, 38% of which had venue costs imputed and 39% of salary imputations.
• For LA/children’s centres, of which 15 partook in the study, 10 and eight, 63% and 50% respectively, did not provide venue costs or salary costs.
• Finally the highest average weekly cost is prescribed to maintained nursery schools. 100% of the venue costs have been inputted and 27% of the salary costs.
As anticipated, the report illustrates that the private sector manages costs significantly more efficiently than state delivered childcare. Private business owners are generally more involved in business monitoring and therefore ensuring costs are managed correctly. However, this study considers the average weekly operating cost for a private nursery to be in the region of £6,307, this being on an annualised basis over 51 weeks, which accounts for circa £320,000. We know a significant number of nurseries across the UK that barely achieve a turnover of this level and thus we have to question the blanket approach to assessing operating costs, therefore querying the validity of this study’s findings.
The report also indicates that higher quality does not involve substantially higher costs. Christie & Co has been involved in the childcare sector for a considerable period of time and visits on average 1,000 day nurseries every year. Thus we can categorically state that the notion of ‘higher quality not involving higher cost’ goes against what our team sees on a daily basis.
We have considered the findings of previous studies, namely the Review of Childcare Costs: The Analytical Report. An economic assessment of the early education and childcare market and providers’ costs, published on 25th November 2015 by the DfE. At the time of publication the sector was generally unimpressed with the quality of data gathered. Neil Leitch of Pre-school Learning Alliance has taken a very public stance with criticising the report. According to Nursery World, Neil has criticised the data as flimsy and shameful. Neil has not just criticised the data, he has also won a Freedom of Information request for the raw data to be published. This has taken over a year, with rejections from the DfE and consequent appeals by Neil. The data shows significant gaps in answers and a similarly small sample size to the most recent report.
Whilst we welcome studies into the cost of delivering childcare, we feel ‘Study of Early Education and Development (SEED): The cost and funding of early education’ is not a true reflection of childcare providers across England. As previously noted, we showed concerns over the sample size, the significant amount of information which is from imputations and the manner in which the information has been gathered.