Sector Overview

Day-care nurseries are defined as nurseries that care for children aged from birth to five years and usually offer day care from 8am to 6pm, for most of the year. All day nurseries will be registered with Ofsted and can be run by private individuals, community groups, Montessori organisations, commercial businesses or by employers.

The sector is a huge part of the early-years childcare scene in the UK. According to figures released in May 2016, the business of running day-care nurseries in this country is worth around £4 billion a year, with an estimated 23,500 day nurseries employing over 188,000 people and offering in excess of 1,000,000 childcare places.

These figures have been steadily increasing since the mid-1990s, due to a variety of socio-political factors.

Having experienced a significant decline in the recessionary years of 2008-2012, this is a sector that outperforms the overall marketplace, with a five-year growth rate of 3.9%. There has been a general stagnation in the last 18 months, as the UK economy goes through a low-growth period. However, while the economic downturn can negatively affect all businesses, the prevailing trend for more parents to seek employment in times of relative financial struggle is driving demand for nursery places for children aged five and under.

The day nursery sector has traditionally been fragmented and continues to be so. There are a number of chains with multiple locations around the country, but none of the leading players can point to a market share even close to 5%. There is therefore a proliferation of smaller local and regional operators in the marketplace, largely because of the specific demands a nursery business puts on its owners – high levels of supervision and strict child:adult ratios limit the numbers of children who can use each centre and make profitability a challenge.

Having long been ignored by politicians, the issue of childcare has risen far higher in the last decade, due in large part to fast-changing family and employment conditions and the resulting transformation of parental roles. Far more mothers are now at work while statistically, fathers spend a greater proportion of their time with their children than in years gone by. There are also more single parent families and families with children with special needs – just two high-profile patterns that the childcare sector as a whole has adapted to and changed its provision accordingly. Nurseries have played a pivotal role in those developments.

There has been much political debate about the affordability of childcare. While prices have risen gradually in the last few years, there is no doubt that margins are tight in childcare generally. There has been a steady increase in the number of parents who want to place their children into nursery care and the government’s introduction of schemes to make childcare more affordable for parents has helped nursery operators to attract greater numbers of customers. There is potentially room for prices to rise, but any attempt to increase revenue is likely to be made in the face of public opinion driven largely by people from outside of the industry.

The biggest talking-point in the industry right now surrounds the government’s commitment to introduce 30 hours free childcare legislation in September 2017.

At present, all three and four year olds are entitled to up to 15 hours of free childcare a week for up to 38 weeks a year. From September 2017, the government will increase free childcare to 30 hours a week (for up to 38 weeks a year), as part of its Childcare Act 2016. This increase will only be available to families who meet certain criteria. Parents will be able to access the funding through early-years settings, including nurseries. The extra funding aims to:

  • support working parents to manage the cost of childcare
  • support parents into work
  • allow parents to increase their hours, should they wish to

The government has carried out a consultation on an early years national funding formula and changes to the way the three and four year old free childcare is funded and several local councils are piloting this offer from September 2016. Check with your local council to find out if they are amongst the early-years implementers.

With limited resources, most centres rely on word of mouth to attract the majority of their new customers and a predominant view amongst parents that they would perhaps trust a smaller centre to have their children’s interests closer to their heart. Convenience is another key desire for parents and location is central to that – this leads to there being greater numbers of smaller nurseries in prime locations, rather than large central childcare settings.

The day-care nursery sector often feels as though it is in a state of flux. However, its constant ability to be flexible to the changing needs of the UK population has seen levels of professionalism increase exponentially since the Millennium. This is a sector that lays the foundation for the education and care sectors its children move onto, and shaped by the guidelines set out in the Early Years Foundation Stage, that base is an extremely solid one, which serves the children of this country exceedingly well, as well as their parents and the rest of society.