A report from Laing and Buisson, Children's Nurseries 2004, says the market is now worth 2.66bn. Total capacity in the sector increased by more than 13 per cent in 2003, with 12,075 day nurseries in the UK providing 537,450 places for children aged under five. But the total number of children attending nursery each day was 482,250 and the vacancy rate rose from 14 per cent to 15 per cent over the year.
Author of the report, economist Philip Blackburn, said, 'The rise in vacancy rates for the second year running indicates that growth in nursery capacity is not being fully met by higher demand. If this trend continues, undesired excess supply will build up and put pressure on the sector's sustainability.'
He said Government initiatives had so far concentrated on providing childcare in areas of disadvantage and this had had a limited impact on the private and voluntary sector. But he warned that the Government's plans for children's centres and extended schools could threaten to increase competition in the sector.
Rosemary Murphy, chief executive of the National Day Nurseries Association, said, 'The report highlights the mismatch between the strong growth in the sector and falling occupancy levels. The concern for us all must be sustainability over the next few years. At grassroots level, the Government drive to create more places may soon simply move places from private and voluntary nurseries to the maintained sector, rather than produce more places overall. The nursery sector's energy, experience and success should be capitalised on, not eroded by short- term Government initiatives.'
The report said that growth in the sector was due to a 7 per cent rise in fees, with the average now at 128 a week, and an expansion in the number of nursery facilities, rather than a rise in the average places per nursery.
Employers spent, either through workplace nurseries or corporate childcare vouchers, an estimated 185m last year on nursery services. Government subsidies for three- and four- year-olds in nurseries, based on 126,600 children in England having a place, was estimated at 220m. Meanwhile, support for parents through the childcare element in the working tax credit rose sharply, from 130m to 240m in 2003.
Around 140 providers operating three or more nurseries account for 15 per cent of the total number of places, and the number of major providers has grown by a third over the past two years. However, the report noted, 'The market is still highly fragmented, with a large number of companies seeking to expand from a small base. The largest major providers have only minor shares of the total market, with the leader, Asquith Court, holding a 1.3 per cent share.'
Mr Blackburn said that more competition would create 'greater potential for increased acquisition and merger activity, and consolidation'.