The research by PricewaterhouseCoopers focuses on the perceptions of PVI providers of Government policy in six local authority areas.
It examines how local authorities are assessing demand for childcare to meet their new duties under the Childcare Bill and calls for 'fine-grained and robust' local authority needs assessments.
It also considers the scope for consolidation in the PVI sector.
The report said that 'growth has slowed in the past one or two years, and some providers are experiencing falling occupancy, fee pressure and increased staff costs, despite high levels of demand nationally'. It said that while 'increased local competition is a key factor' for some providers, others 'believe that additional local capacity in children's centres and schools is having a significant impact'.
It said the PVI sector could lose out to competition from children's centres and schools and that 'losses may not discriminate between high- and low-quality capacity. This would hamper market development and could leave the local authority footing the bill for a larger proportion of childcare than is necessary.'
The National Day Nurseries Association welcomed the report's recognition of the challenges faced by PVI providers. Chief executive Purnima Tanuku said it 'reflects how much provision, including local authority-run children's centres, is unsustainable in the open market and faces an uncertain future without long term Government funding'.
She added, 'We also question how private and voluntary provision can ever compete on a level playing field when the average cost of a full-time place in a children's centre is 250 per child per week. Parents pay an average fee of 120 per week in maintained settings, so local authorities are significantly subsidising improvements in services.'
The PWC reports on children's services include plans for a single commissioner of parenting services and the recent consultation on Childcare Sufficiency Assessments.
DfES Children's Services: The Childcare Market can be downloaded at www.dfes.gov.uk/ research.