On the face of it, the latest annual report from Laing and Buisson indicates a healthy day nursery market, with 20 per cent growth in the past 12 months, making it worth 3.2bn, three times bigger than it was in 1990.
The report says the chief drivers of this growth have been increased demand from parents facilitated by expanding capacity and higher fees, up 4.5 per cent in 2004. But closer scrutiny of the figures in Laing and Buisson's Children's Nurseries UK Market Report 2005 indicates that supply is outstripping demand in many areas, that occupancy levels are falling, and all this is happening before the impact of the Government's children's centre programme becomes fully apparent.
The key statistic is the widening gap between the total number of nursery places, up 17 per cent to 630,525, and the total number of children attending nurseries, which stood at 545,950 in January this year, a rise of only 13 per cent. The gap has grown from 55,200 last year to 84,575.
Andrew Fitzmaurice, chief executive of the Nord Anglia nursery chain, points out that the extent to which supply is racing ahead of demand is even more graphically shown once the number of children attending nursery is converted into full-time equivalent places. He says, 'There is too much supply compared to the amount of demand in the market, and with this gap opening up it is a logical thing for people to stop opening up nurseries.
'We have a good dialogue with Government and we are hoping that we can convince the Government and local authorities that a way to solve their requirements for childcare - the one million places that Gordon Brown is talking about - should be to take up spare capacity within the private sector. At least, that should be their first port of call.'
Growing gap
Philip Blackburn, an economist at Laing and Buisson, says the growing gap between the total number of places and the number of children attending nurseries is 'worrying'. He warns that if this trend continues it will 'probably lead to quite a few closures', particularly among 'smaller independent, non-affiliated nurseries, which would be most vulnerable'.
Given that the report shows that more than 40 per cent of the nursery market belongs to small businesses with 40 places or fewer, the issue of sustainability would appear a substantial one for many providers. But he stresses there are significant regional variations in supply and demand, with nursery vacancies highest in East Anglia, while occupancy levels are highest in the West Midlands and Scotland, with potential for growth.
'Ofsted figures clearly suggest that people are opening up nurseries at the same high growth rate as over the past five years. There is a plethora of new entrants still looking for that local or regional untapped market,' he adds.
Staff cuts
Carol Leech, who runs the Buckingham's Day Nursery and is co-chair of the North Staffordshire Nurseries Network, recently carried out a survey of providers in the area to lend ammunition to a campaign to force the local authority in Stoke-on-Trent to rethink plans for expanding nursery provision.
With occupancy levels falling, she says, 'Things are looking very gloomy.
People are feeling the squeeze because there are only so many children to fill nursery places. If occupancy levels are falling below 80 per cent, then you are having to consider cutting staff.'
When she opened her nursery in 1997, there was another already in the immediate area, but she says neither felt threatened and that they 'enjoyed a good relationship'. However, she says the subsequent creation of two more nurseries with 89 and 61 places has apparently sealed the fate of the original nursery, and it faces closure.
While many nurseries have fewer than 50 places, she says it is becoming clear that only those with 80 or more have the scope to reinvest and therefore be sustainable. 'The days are numbered for your small private enterprise. For many women who set up small nurseries, it is their pension, and they won't be able to sell because the large chains are not interested in acquiring small single nursery units,' she adds.
Rosemary Murphy, former chief executive of the National Day Nurseries Association (NDNA), says that it is 'considered advantageous to be a larger provider, as the economies of scale are likely to make the provision more viable'. However, she adds that it is vital not to lose 'the valuable contribution that small nurseries make to their communities'.
Increased competition
Nurseries in south Gloucestershire are facing increasing competition from Government initiatives, and now find that they also have to compete with playgroups who are registering to provide full daycare.
Mary Graveney, of South Gloucestershire Private Nurseries Association, says the playgroups, which are having to register because they want to open for five hours a day, are now eating into the market share of nurseries running two four-hour sessions.
'We are all very concerned about this and if they are going to get schools to extend and provide childcare and it's got to be on site, then we'll end up half-full,' she warns.
Robin Karkeek, who runs 13 Happy Days day nurseries in Cornwall, understands the plight of single-site providers who could be driven out of business by the pressure of competition and regulation.
He says larger private providers are better placed to adapt to changes in the nursery market. 'The writing was on the wall five years ago that the Government initiatives would be a powerful force, and nurseries had to position themselves accordingly.
'As a group we did that by tackling the Neighbourhood Nurseries Initiative and we took on five of them. We are now well positioned to assist local authorities to go forward with their children's centre programme. It's a question of strategy, of adapting and being flexible.'
Mr Karkeek says the Newquay-based chain prepared for the Government's integrated services agenda by ensuring that the design of new nurseries could accommodate the core elements of a children's centre.
It has also paved the way for the five neighbourhood nurseries to become designated children's centres in the first wave of the programme by appointing teachers.
He adds, 'It is a question of giving up a lot of management time and support to local authorities to help them deliver their statutory obligation. Leave it to themselves and they will go their own way. The private sector has an obligation to come up with some operational models.'
Higher salaries
Many providers are increasingly concerned at the mismatch between supply and demand, but are anxious for the Government's workforce strategy to offer help in boosting wages and therefore retaining experienced, qualified staff (see 'More information').
The Laing and Buisson report found that average pay for a qualified nursery worker is now 6.61 an hour and that successive increases in the minimum wage have raised the earnings of unqualified staff to an average of 5.15 an hour. It found that nursery managers were paid an average of 7.57 an hour.
However, Tricia Pritchard, professional officer of the Professional Association of Nursery Nurses (PANN), says she still receives reports of nursery 'officers-in-charge who are getting the minimum wage'.
She says regular surveys of PANN's membership have revealed that nursery managers have quit their posts to become classroom assistants because they can earn more. 'It is no mean feat to reach that status, and then to have to give it up because of the salary is a huge loss to a nursery,' she adds.
She agrees with the NDNA that improved salaries will only come through Government subsidies. Rosemary Murphy expresses the sentiments of providers and their staff: 'We all support better wages, but unless more Government investment comes direct to providers, the only way we will support higher salaries is through higher fees.'
The Laing and Buisson report estimates that the proposed increase in the minimum wage in October 2005 to 5.05 per hour for adults and 4.25 for those aged 18 to 21 could add an extra 3 to 3.50 a week in fees for a full-time place. That could be the nail in the coffin for many operators who feel they are nearing the limit of fee increases, especially in the face of subsidised provision from the maintained sector.
Certainly, if the mismatch between supply and demand continues, next year's report could make for even more gloomy reading.
More information
* The Laing and Buisson Children's Nurseries UK Market Report, priced Pounds 495, can be ordered at www.laingbuisson.co.uk or call 020 7833 9123.
* The Children's Workforce Strategy: A strategy to build a world-class workforce for children and young people can be downloaded from www. everychildmatters.gov. uk/key-documents. The closing date for submitting views to this consultation is 22 July.