Campaigners are calling for tougher regulation of the childcare market to safeguard taxpayers’ money, as new analysis shows more than £1 in every £5 spent at English nurseries backed by large investment companies ends up as profit.
Jeremy Hunt announced an extra £500m funding in last week’s budget, to help meet his promise of 30 hours a week of free childcare for under-threes by September next year – which he hopes will bring 60,000 parents back to work.
With public funding for the sector set to surge, research by the Guardian and the Joseph Rowntree Foundation (JRF) in collaboration with investigative accounting firm Trinava Consulting reveals that private chains are poised to make bumper profits, even as small providers struggle to survive.
The analysis shows nurseries backed by investment companies – including private equity firms, asset managers and international pension funds – reported double the profits of other private providers and seven times those of non-profits.
JRF said the findings underlined the need for stricter controls on the sector. In a new report, the anti-poverty thinktank calls for “social licensing” of childcare providers. This would demand commitments on workers’ pay and value for money from nursery chains – potentially including a profits cap. Firms in receipt of public funding would also be expected to be financially transparent.
Abby Jitendra, the JRF’s principal policy adviser on care, said: “Our childcare system is a wild west where the biggest providers cash in while others struggle and workers live on poverty pay – pouring billions into it without proper controls is utterly irresponsible.”
The companies backed by private equity or investment firms covered by the analysis – which represent some of England’s largest childcare providers – reported average profits equivalent to 22% of their turnover over the five-year period between 2018 and 2022.
This is twice the 11% reported by other private providers not backed by investment companies, and more than seven times the 3% reported by the non-profit companies analysed.
Profits are not necessarily paid out to shareholders: they can be used to repay debts or reinvested in the business to improve services.
But Stacey Booth, a national organiser of the GMB union, said: “Too many nurseries are run as a business first and education establishment second. We need more regulation – hopefully an incoming Labour government will deliver this.
“Any profits in education and childcare should be invested back into the sector, lifting the wages of workers and ensuring good career pathways. Happy staff equal happy children.”
The analysis shows that the combined debt of England’s 43 largest childcare companies, regardless of ownership, rose dramatically in the same five-year period from £0.6bn in 2018 to £1.13bn in 2022, an 85% rise. The increase has mainly been driven by providers backed by investment firms, who are more willing to take on larger debts in order to finance rapid expansion.