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Business of childcare will fail so long as toddlers are the cash-cows

Supermarket staples. Halfpoint/Shutterstock

Most of us are used to seeing crazy bargains when we go into the local supermarket, with items such as baked beans, bananas or milk being sold at a price that seems far below what they must cost to grow/make and sell. It’s a well-tried method – “loss leaders” are used to draw us into shops where we are also enticed to buy non-discounted items. So, unless we only plan to eat baked beans, our shopping basket usually gives the retailer an overall profit by the time we get to the checkout.

So, what’s this got to do with childcare? Most childcare providers in the UK, such as day nurseries and childminders, are private businesses that need to make a profit for their owners. But the need to protect children and maintain minimum standards of quality mean that they operate in a highly regulated environment. In particular, the number of staff they employ depends on the number of children they care for, and their ages.

Spilling the beans. Jiri Hera/Shutterstock

For three- and four-year-olds, UK laws state that one member of staff is needed for every eight children. But for children under a year old, one member of staff is needed for every three babies. So it’s easy to work out that with staff being the biggest expense in running a childcare business, the cost of looking after babies is easily more than double the cost of looking after three-year-olds – yet few nurseries pass this higher cost on to parents in full. Why? Because babies are their loss leaders.

Choosing childcare is a complex trade off for parents between emotional and rational factors – including price, access and availability. But, having chosen, parents are usually reluctant to alter their arrangements. By rarely passing on the true cost of a place for babies, childcare is made to seem more affordable and attractive to new customers. As the babies grow up, and staffing ratios and costs go down, toddlers become profitable while three- and four-year-olds become the nursery cash cows.

Free for a price

This business model for childcare has held true for many years, but the introduction of 30 “free” hours of childcare for three- and four-year-olds in parts of the UK is creating real problems for the sector. The “free” hours are funded by local authorities at a rate calculated from the costs associated with childcare for the age group, but not taking into account the way that baby places are cross-subsidised.

This means that parents will either end up paying more for babies, or as has been seen across England, childcare businesses are making up the shortfall in other ways, such as charging for “extras” like nappies, meals, trips or registration fees. Some day nurseries and childminders have indicated that they may stop accepting children under the free childcare offer, while others are doubtful that they will be able to stay in business as a result.

Read more: Underpaid and undervalued: the reality of childcare work in the UK

In Wales, the plan to offer 30 hours free childcare is problematic because almost 90% of Welsh three-year-olds are in school for at least ten hours per week where they receive free early education. Few schools in Wales provide any kind of childcare that “wraps around” the part-time early education place making it hard for working parents. It also makes it tough for childcare businesses to make a reasonable profit from providing care just for babies and toddlers. As a result, there is limited choice of childcare in Wales, and it is often difficult for parents to access.

Some have argued that these problems are inevitable when childcare is delivered by the market rather than being a public service, but the current problem lies in it being neither a true market, nor fully publicly funded. In total, there are nine different UK government schemes that can reduce the cost of childcare – some of which can be claimed at the same time as each other, while others cannot – yet UK childcare can still be the most expensive in the world. Meanwhile, childcare businesses are expected to provide services in an environment that fixes the amount of income they get and regulates how they can spend it.

A recent parliamentary report said the system of UK childcare contained “fundamental design flaws”, and that commendable public initiatives are failing against perfectly reasonable commercial imperatives. Further tinkering around the edges is likely to make matters worse.

As growing international evidence makes clear, the best outcomes for parents and children are from universal, state-funded systems. This means quality care and early education that is available and affordable to all, from when parental leave ends to when compulsory schooling begins. Babies are too important to all our futures to be treated like baked beans.

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