Growing a new childcare system: Reshaping the market

blog | Words Charlotte Billington | 21 May 2025

The government’s mission to ensure every child has the best start to life is a source for great hope. Prioritising prevention will break the unfair link between family background and opportunity. Combine this new mission with the government’s continued commitment to expand early years funded places, and we have a fantastic opportunity to improve life chances and reduce childhood inequality. 

However, there should be no sigh of relief just yet. Actually, we should be pretty concerned about the risks ahead. 

A dysfunctional market

The current childcare market in England is dysfunctional. It may not be as dysfunctional as the nursing home market, or children’s home market, where many big private providers are guilty of profiteering, indebtedness and rent seeking. However, if the current funding arrangements for the early years market continue, it is at risk of following an eerily similar path. 

Of the ten thousand day nurseries in England, 84% are for-profit and most are tiny, with one or two settings. However, the largest providers are owned by private equity firms and foreign investors, encouraged by low risk, guaranteed returns backed by taxpayer subsidies. These providers are the ones who have the most to gain from the future policy direction, with younger people from the most deprived backgrounds, and those most in need of high quality education most likely to be unintentionally excluded from the benefits. 

Entrenching inequality 

The market dominance of private providers actually works against the government’s mission. This for-profit model encourages more provision in communities where household incomes are higher, parental employment is higher and parents can afford to pay top up fees to send their children to nursery. Providers are incentivised to manage demand through higher fees and longer waiting lists. Affluent families are relieved to secure a place on a waiting list in a reassuringly expensive setting. 

On the flip side this system also results in ‘childcare deserts’, areas where there is a shortage of accessible and flexible childcare places. Deserts are concentrated in the most deprived local authorities, low-income communities, where wages and skill levels are lower and paid work for parents is more insecure (see map below). Rural communities also suffer from childcare deserts, where falling birth rates reduce demand. Early years places for children with special needs and disabilities are hard to find anywhere, as for-profit providers seek to minimise the extra investment and extra resources these children need.  

 

The result is that the children who could benefit the most from high quality early education, will be the ones most disadvantaged by the way the current market is organised.

Moreover, the expansion of government funded early years places, will disadvantage smaller for-purpose (not for-profit) providers operating in low-income neighbourhoods. These providers are much less likely to benefit from the economies of scale experienced by large private equity backed chains, and much less able to charge high top up fees to parents. Yet these are the organisations that hold the key to delivering on the government’s mission because their primary purpose is to use public investment to build social value through the delivery of high quality early education for all, not just some. 

Imposing social value conditions and supporting the growth of for-purpose providers ensures better access to high quality education and care for more families. Below we highlight two inspiring examples: 

1. Tops Day Nurseries 

Tops Day Nurseries began with a purpose to inspire children and shape a sustainable future. 

All nurseries are rigorously reviewed to ensure the carbon footprint is minimised, as well as having integrated learning sessions for children on the subject of caring for the environment, growing their own food and being waste conscious. 

Tops Day Nurseries transitioned to an Employee-Owned Trust in April 2024, giving employees more belonging, accountability, and the right to have a say about the running of the company, its future, and opportunities.

Tops Day drives high quality provision by providing in-house training through its sister company, Aspire Training. Staff have access to a high level of training and support, up to 33 days of paid training per year as well as support for unpaid training and experiences too.

Tops Day earned a Queen’s award for Enterprise in Sustainable Development, achieving Green Flag certifications at all settings and speaking at national events to promote change. They were the first nursery in the UK to achieve B Corp status in 2019.

2. Acorn Early Years Foundation

Acorn EY Foundation specialises in outdoor play and learning, the use of natural resources, healthy food, and an emphasis on the professional development of their staff. 

In 2012, the organisation began its transition into a charitable social enterprise and this has enabled their strong ethical grounding to be protected for the long-term benefit of the children and families using their services.

Acorn operates a cross-subsidy model which monitors and evaluates the financial viability and the social impact of each nursery to ensure a balance across the group. Partnership working with children’s centres, local authorities, schools, and external agencies is a key feature of Acorn’s success in supporting parents and carers, and in promoting the early years sector as a career pathway for both young people and adults seeking a change of career. Regular visits to care homes and retirement accommodations also enrich the lives of elderly residents in local communities.

In February 2023 Acorn introduced a voluntary contribution towards the cost of food and activities for fully funded places only, to help bridge the gap between Acorn’s costs and the funding rates. Since its introduction a number of these fully funded families have been happy to contribute. Places are also made available for the local authority and for children with additional needs. 

By taking a place-based collaborative approach, early years providers can positively impact local families and communities. Below we highlight two inspiring examples: 

1. Coin Street

Coin Street Centre Trust and Coin Street Community Builders jointly operate a family and children’s centre in Southwark, Central London, with the Trust overseeing the day-to-day work of the centre. 

Coin Street generates income to invest in their neighbourhood. Three-quarters of their income comes from commercial activity such as letting spaces to restaurants, shops, and design studios; and hiring venues for conferences, exhibitions, street markets, etc. All these activities create employment and provide services as well as generating vital income.

Through this partnership and collaborative working, Coin Street were able to increase their reach to families not accessing support elsewhere. 

2. Match Box Nursery & Poplar Harca

Poplar HARCA owns and manages around 9,000 homes and operates in an area of long standing social and economic deprivation with high levels of social exclusion and aims to bring about the social, urban and economic regeneration of the Poplar area. 

Matchbox Nursery is an independent day care nursery and social enterprise, based in East London on one of the Poplar HARCA housing association estates. The nursery works in partnership with the housing association which acts as its landlord, supporting the funding of building refurbishment and acting as a  key supporter. 

Matchbox believes happy, well-remunerated staff are a strong marketing point, boosting occupancy and maximising income. 84% of their staff are local, and good staff relationships save recruitment costs.

The nursery’s emphasis on local employment means that the staff, as well as the children, are beneficiaries.  Around 50% of the children have parents who are Poplar HARCA tenants or residents. Many families that attend Matchbox end up building strong bonds, supporting one another