Early years - hidden childcare fees under scrutiny

The stated purpose is to see how the market is working following the completion of the funded hours expansion in September. This follows the announcement in the autumn budget that the DfE would lead a review of childcare provision. The government seeks independent insight from the CMA by spring 2027 to inform that review and future system delivery, with a focus on the challenges some parents still face to access high quality childcare and early education.

Status and scope of the CMA Review

The CMA have been asked to consider:

• The impact of market practices, such as private paid hours/fees on parents and providers; restrictions on use of funded hours, consumables and waiting list practice.
• Supply-side dynamics including accessibility and sustainability and the role of different types of provision in the market.
• How the demand side is able to drive positive outcomes in the market and levers to achieve this.

It is important to note that although the letter has been acknowledged, the CMA has not yet decided what to do. They are developing a proposal to put to their Board in June.

The CMA have access to 3 market tools should they decide to take action: a market review (which appears to be what has been requested and is in our view most likely, at least initially), a market study or a market investigation, each with increasing levels of formality, statutory powers and potential remedies.

A market review would be likely to involve requests for information, documentation or interviews with a range of stakeholders in the market, but no express obligation to comply. It would be likely to result in recommendations for change, and to involve careful consideration of whether free early education entitlement is sustainable at present levels of funding.

What next?

Although we think a CMA market review likely, we consider the request itself and government plans for a review of the childcare market will increase scrutiny of schools and other nursery providers about childcare provision:

• Transparency: Are parents given clear, upfront information about total childcare costs? Are there hidden fees?
• Charging practice for funded and private hours, consumables, outings, and other extras. Do extras reflect genuine costs?
• Consumer Protection: Increased interest from local authorities and trading standards in consumer protection in the event of hidden fees or breaches in the 'free at point of delivery' purpose of funded hours ahead of CMA scrutiny and the exercise of their powers to impose penalties for identified breaches of consumer law requirements. 
• Quality: what evidence do you have about quality standards and outcomes for children in early years?
• Communication: Staff should not engage in discussions about fees or pricing strategies with competitors, as this can trigger competition law concerns, a point reinforced by historic cases in our sector.

For independent schools with early years provision, whether as part of the school's registration or as a standalone nursery, the review underscores the importance of robust, transparent contracts, price lists and charging arrangements and a warning of reliance on informal arrangements with local authorities regarding charging arrangements for funded places which may breach the government's expectations.

While the CMA’s review is market-wide and not targeted at individual providers, Phillipson is clear that she wants the CMA to look at the role private equity in particular is playing in childcare. This may impact investor appetite in the market.

We will monitor developments and report to you on those and the likely impact. 

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If you have any queries in the meantime, please do not hesitate to contact Tabitha Cave.