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Ofsted presiding over a broken market – its role needs to evolve with the system

Professor Helen Penn, from the School of Early Education, University of East London, examines Ofsted’s regulation of the early years childcare market, calling for the regulator to step up its oversight of the sector to drive up quality and sufficiency.

Written by:
Professor Helen Penn
Date published:
Reading time:
9 minutes

Twenty five years ago private sector childcare was negligible. Now the private sector itself estimates that the private childcare market is worth approximately £6.7 billion, of which the direct Government contribution in subsidies is £3.7 billion – which will rise significantly with the planned expansion announced in last week’s Budget.

Because of the profits involved, the numbers of children attending childcare, and the crucial role childcare plays in enabling women to work, there is a strong argument that Ofsted, the Office for Standards in Education which is the industry’s only watchdog, should monitor and adjudicate over competition, fees, costs and value for money.

Why Ofsted regulation in private childcare is vital

Ofsted’s original remit was to oversee the standards of free public sector education, but it has subsequently taken on the inspection of market-based childcare services that are part-subsidized by government. 

The childcare market is heavily subsidized by Government, but it is a distorted market. Our recent research (Simon et al, 2022) suggests that it is no longer competitive, flexible or innovative – the reasons for supporting it – but is badly skewed. Childcare, like many other sectors, is now dominated by large financialized companies, which fund their expansion by extensive borrowing from national and international private equity companies. This situation is volatile. Such companies continually expand and consolidate their provision through mergers and acquisitions, and turnover of ownership is rapid. The largest companies own more than 300 nurseries each. Companies are seriously in debt to their investors as well as needing to pay their shareholders dividends; the low financial reserves of these companies is risky. Over the last few years the total number of places in England has not increased despite market dynamics. The pandemic exacerbated existing market trends (Lloyd and Simon, 2022).

Childcare companies determine their policies at a company rather than local level, and their considerations are primarily in terms of financial returns. Many nursery functions are outsourced, or dealt with at a head office level, so the autonomy, flexibility and accountability of an individual nursery within the company is limited. Childcare fees are high relative to those in other OECD member states (OECD, 2020). Financialized companies typically reduce expenditure on staffing from around 80% to 55% of outgoings, but pay senior company executives (usually financiers) very generous salaries (Simon et al, 2022).

In 2021 70% of group-based childcare places were provided by these financialized companies, 13% of which are currently overseas based. Financialized companies have shown some distressing failures of care in other areas regulated by Ofsted, such as the care of looked after children (Kotecha, 2019; CMA, 2022). 

The financialized companies therefore pose problems in terms of their dominance and exploitation of the childcare sector.

Ofsted do not address any of these finance issues, and do not collect any information about childcare market trends. They do not distinguish between company providers operating large chains, single or small businesses, or charitable provision. Each inspection of a nursery is conducted as if it were a single provider. 

Ofsted’s light regulation is failing children and parents

Ofsted have outlined the regulatory standards criteria for childcare, separately and using different criteria from that used for nursery education based in schools. The childcare criteria, which run to several handbooks, includes a suite of health and safety regulations, including adult-child ratios; and prescriptive developmental standards that providers should be working towards. Ofsted provide background research papers, to justify their standards. The recent childcare research review claims to be evidence based, and to inform the regulation procedures. (Ofsted, 2022)

Childcare and early education policy is beset by 'path dependency' - defined and designed by a framework of past beliefs, traditions and opinions, rather than evidence based research (Schweie and Willekens, 2009 and Sivessind, 2017). Other countries make strikingly different assumptions about childcare and early education, including the extent to which the early education and care sector are integrated, or prioritize accountability to parents or promote children’s rights. Both OECD and EU (Eurydice, 2019) provide very detailed statistics, analysis and guidance. Ofsted, by comparison, has a limited view of information and standards.

Children with additional needs face gaps

There is ample evidence to suggest that the most disadvantaged families are the least likely to access childcare. (Albakri et al, 2018; Archer and Oppenheim, 2021). There is a particular problem about access for children with special needs and disabilities. (Griggs and Bussard, 2017). Ofsted do not monitor social intake to nurseries, or comment on the fairness of the system or distribution of places.

Staff shortages - a chronically underpaid and undervalued workforce

One of the key issues currently facing the childcare sector is staffing. Recruitment and retention of staff are generally agreed to be highly problematic. The quality of the childcare and early years workforce is essential to achieving quality provision (OECD, 2019). Several recent childcare workforce studies (Christie & Co, 2019; Bonetti, 2019; Haux et al, 2022) point to low pay, low qualifications, and relatively poor recruitment and retention, and very little unionization within the private sector childcare workforce. There is a huge divide between the pay and employment conditions of the qualified early years teachers and teaching assistants working in public provision, and the private childcare sector workforce.

A supportive work organization, along with high-quality initial and in-service training is an important factor in improving recruitment and retention and in providing a high-quality service for children (OECD, 2019). Ofsted collects information about the numbers of paid childcare workers, but does not provide detailed information about initial and in-service training, or workforce conditions. Although there are some requirements about minimum qualifications required for childcare (much lower than in the education sector), there are no stringent checks on qualifications, and reporting is scanty on staffing issues.

Inflated grades, little information on quality, and few consequences for poor quality

Providers are now inspected on a six-yearly cycle. As stated above, no information about providers’ finance, or nursery charges (for example, value for money), is collected, even although services are part-subsidized by government. There are only four categories of assessment: outstanding, good, needs improvement, and inadequate. The full reports on every nursery can be read online, but the comments are usually very general.

In 2021, 17% of providers were categorized as outstanding, 80% as good, 2% as needing improvement, and 1% as inadequate (Ofsted, 2021). A provider can be rated as good even if, for example, they have no outside space for children to play, a situation which would be unacceptable for children the same age in the education sector.

Ofsted make all their reports on facilities available online, and there is evidence to suggest that this service is widely used and valued by parents. Ofsted also act quickly in following up complaints. However, the existence of Ofsted is regarded as a plus by private sector operators. If 97% of private nurseries are described as good or even outstanding, by an ‘independent’ inspection regime, then this is a credit to the private sector. It has been claimed by one leading agency specializing in sales of nursery chains, that one of the reasons inward investors are keen to buy into UK childcare is because, in effect, it offers parents guarantees of quality (Simon et al, 2022).

Apart from the failure to regulate on value for money or collect information about the childcare market, the infrequency of inspections, the very general categories of assessment, and the failure to acknowledge staffing issues, undermines the idea of discerning standards. There are also no sanctions, other than re-inspection or deregistration for the most extreme cases.

For example, in October 2022 an Ofsted inspection rated one Manchester nursery as chaotic and unorganized, and inadequate on all counts. The nursery appealed against the rating, and in January 2023 it was still open and describing itself on its website as follows: ‘We are an Ofsted registered day nursery and consist of an enthusiastic team of staff who provide a safe and stimulating environment for all children to stretch and grow’.

If Ofsted childcare reports are very circumscribed in what they report on, if the categories of reporting are so general, and if reports are infrequent, then the accountability has little value.

Do we have the right framework to regulate the market?

Ofsted at present does not regulate the childcare industry other than overseeing standards of provision, and it does not do this rigorously. The childcare market is uneven and exploitative, but Ofsted (and by extension the Government which controls Ofsted's remit) does not recognize this as an issue, and currently does not have any mechanisms in place to regulate the market's fiscal excesses. At present, Ofsted would find it difficult, given the nature and extent of its other remits, to do this.

In the long term, the entire system of childcare and early education requires radical reform, including a rethink of the role private enterprise plays in it. That means challenging the existence of a market itself. Financial regulation in general, including asset holding, offshore accounts, and tax regulations also need major scrutiny and reform (Olmos, 2022).

But while we wait for this much-needed reform Ofsted should be ensuring a fair and decent standard of service for consumers (parents and children) while overseeing a relatively new competitive market subsidized by government, where excessive profits are being made by some companies. It should start by –

  • Collecting information about childcare ownership and fees – although the market is so volatile, that relying on six-yearly inspections would be pointless.
  • Collecting more detailed information about staffing, including initial and in-service training and workforce conditions and pay rates, and incorporate this more stringently into inspection standards.
  • Reviewing standards, outcomes and accountability to parents, in line with other EU/OECD countries.
  • Collecting information about the intake of the childcare nurseries, including levels of SEND provision and incorporate this into inspection standards. 


Albakri, M Basi, T Davies, M Forsyth, E Hopwood, V Patel, R Skipp, A and Tanner, E (2018) Take-up of free early education entitlements (DFE- RR827). London: DfE.

Bonetti, S (2020) Early years workforce development in England – Key ingredients and missed opportunities. London: Education Policy Institute.

Christie & Co (2019) Early Childhood Education & Care: Workforce Trends & Associated Factors. London: Christie & Co.

Department of Education (2022) Special educational needs and disability: an analysis and summary of data sources

Griggs, J and Bussard, L (2017) ) Study of Early Education and Development (SEED): Meeting the needs of children with special educational needs and disabilities in the early years. London. DfE

OECD Organisation for Economic Cooperation and Development (2001-2021) Starting Strong Series: Thematic Reviews of Early Childhood Education and Care.  Paris. OECD

Olmos, A (2022) ‘Bank of England to stress test edge funds and private equity lending. The Observer, 13 December

Schweie, K and Willekens, H (2009) Childcare and Preschool Development in Europe: Institutional Perspectives. Palgrave MacMillan

Simon, A Penn, H Shah, A Owen, C Lloyd, E Hollingworth, K and Quy, K (2022) Acquisitions, Mergers and Debt: The New Language of Childcare. UCL Social Research Unit.

Sivesind, K.H. (2017) The changing role of for-profit and nonprofit welfare provision in Norway Sweden and Denmark, in K.H. Sivesind and J. Saglie (Eds.) Promoting active citizenship – Markets and choice in Scandinavian welfare, pp. 33-74. Cham, Switzerland: Palgrave Macmillan

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