Most of us are used to seeing crazy bargains when we go into the local supermarket, with items such as baked beans, bananas or milk being sold at a price that seems far below what they must cost to grow/make and sell. It’s a well-tried method – “loss leaders” are used to draw us into shops where we are also enticed to buy non-discounted items. So, unless we only plan to eat baked beans, our shopping basket usually gives the retailer an overall profit by the time we get to the checkout.
So, what’s this got to do with childcare? Most childcare providers in the UK, such as day nurseries and childminders, are private businesses that need to make a profit for their owners. But the need to protect children and maintain minimum standards of quality mean that they operate in a highly regulated environment. In particular, the number of staff they employ depends on the number of children they care for, and their ages.
For three- and four-year-olds, UK laws state that one member of staff is needed for every eight children. But for children under a year old, one member of staff is needed for every three babies. So it’s easy to work out that with staff being the biggest expense in running a childcare business, the cost of looking after babies is easily more than double the cost of looking after three-year-olds – yet few nurseries pass this higher cost on to parents in full. Why? Because babies are their loss leaders.
Choosing childcare is a complex trade off for parents between emotional and rational factors – including price, access and availability. But, having chosen, parents are usually reluctant to alter their arrangements. By rarely passing on the true cost of a place for babies, childcare is made to seem more affordable and attractive to new customers. As the babies grow up, and staffing ratios and costs go down, toddlers become profitable while three- and four-year-olds become the nursery cash cows.
Free for a price
This business model for childcare has held true for many years, but the introduction of 30 “free” hours of childcare for three- and four-year-olds in parts of the UK is creating real problems for the sector. The “free” hours are funded by local authorities at a rate calculated from the costs associated with childcare for the age group, but not taking into account the way that baby places are cross-subsidised.
This means that parents will either end up paying more for babies, or as has been seen across England, childcare businesses are making up the shortfall in other ways, such as charging for “extras” like nappies, meals, trips or registration fees. Some day nurseries and childminders have indicated that they may stop accepting children under the free childcare offer, while others are doubtful that they will be able to stay in business as a result.