The new social contract in childcare is a proposal that public money for funded hours should come with conditions on pay, quality, inclusion, governance and financial transparency. It comes from a 2024 Joseph Rowntree Foundation report and is not government policy. It matters to nursery owners because the state now pays for most places in England, and buyers increasingly price that dependence into their offers.
Whether or not the JRF model is ever adopted in full, our reading of the market is that England is already moving towards conditional public funding. The state pays for most early years places and attaches more expectations to that money each year. Nursery value will increasingly reward financial transparency, a stable workforce, inclusive practice and strong inspection outcomes, and buyers will price regulatory exposure into their offers.
What is the new social contract in childcare?
It is a model in which providers that take public funding for free hours agree to meet set standards in return. The phrase comes from A new social contract in the childcare system, a report by Abby Jitendra published by the Joseph Rowntree Foundation on 12 March 2024.
JRF calls this a social licensing model. Conditions would attach to funded hours and be enforced by Ofsted, which would gain financial monitoring powers, while councils would take a stronger market-shaping role.
The report rejects nationalisation, arguing that a state-run system would cost far more than government will spend, that many councils have limited appetite to run nurseries, and that mass exits would create the shortages reform is meant to fix. JRF proposed a five-year transition, with rules for the largest providers from 2025 and wider conditions from January 2026. That timetable has not been adopted. Its precedents include Ireland’s Partnership for the Public Good and Core Funding, Australian provider approval rules, CQC market oversight, children’s social care oversight, Scotland’s National Standard and academy funding agreements.
Why the debate matters now
The debate matters because the state is now the main buyer of early years places in England, and the main buyer in any market tends to set the terms.
In its answer to Lords written question HL13650 on 30 January 2026, the government said it expects to provide over £9.5 billion for the early years entitlements in 2026 to 2027, more than double annual public investment in 2023 to 2024. The Department for Education’s early years funding consultation of 6 July 2026 states that government funds around 80% of early education and childcare hours in England. DfE’s funding rates explainer for 2026 to 2027, covering rates announced on 15 December 2025, confirms that councils must pass at least 97% of funding to providers, up from 96%.
The provider base is shifting towards group settings. Ofsted’s statistics for 31 March 2026, published on 9 July 2026, show 59,700 registered childcare providers, down 720 (1%) in a year, mainly because of fewer childminders. Childcare on non-domestic premises rose by 410 to 27,900, and providers on the Early Years Register offered 1.31 million places. DfE’s Childcare and early years provider survey 2025, published on 11 December 2025, found that 31% of group-based providers belong to a chain, rising to 43% of private ones.
What the proposed conditions would ask of providers
JRF’s proposals fall into five areas. The third column is our assessment of where the weight would fall.
| Proposed condition | What it would require | Who it would affect most |
|---|---|---|
| Pay and conditions | A higher agreed minimum wage across pay bands, development plans and protected training time for staff | Settings paying near the legal minimum with high staff costs relative to income |
| Quality and SEND | Required SEND support, quality action plans and higher training standards for leaders | Settings with weak inclusion practice or few qualified leaders |
| Governance | A board for every provider except single-setting ones, with parent and worker representation or sign-off on key plans | Multi-site groups, including family-owned groups of two or three nurseries |
| Financial transparency and profit caps | Disclosure of debt agreements and private equity ownership, limits on hidden charges or fees, and possible caps on excessive profits | Leveraged and private equity backed groups, and settings reliant on extra charges |
| Prudential rules for the largest groups | Annual accounts, fit and proper person tests for leaders and supplier of last resort plans agreed with councils, for providers of perhaps 20 or more settings | Large groups, their lenders and their investors |
All five are JRF recommendations; none has been adopted as written in England.
What has already changed since 2024
Most of the JRF model remains a proposal, but several measures tying funding to standards are already in force.
In force
Since 10 November 2025, early years settings have been inspected under Ofsted’s renewed framework. Its new report cards, confirmed on 9 September 2025, use a five-point scale with a separate inclusion grade, and inspections are moving from every six years to every four.
Those grades now carry funding consequences. Under DfE’s statutory guidance on early education and childcare, valid from 1 April 2026, councils need not fund settings graded urgent improvement in leadership and governance or not met for safeguarding, or needs attention for Early Learning for 2-year-olds. Chargeable extras must be voluntary, published and itemised, and from October 2026 councils must pay providers monthly on request. Ofsted’s 31 March 2026 statistics show leadership and governance as the weakest area, with 11% of full inspections graded needs attention or urgent improvement.
The National Living Wage rose to £12.71 an hour from 1 April 2026, up 4.1%, according to the Low Pay Commission. DfE’s Giving every child the best start in life strategy of 7 July 2025 committed close to £1.5 billion over three years to family services and early education, including Best Start Family Hubs in every local authority.
Proposed or under consultation
The same strategy said DfE may increase transparency of the largest providers, possibly along social care lines. On 8 July 2026 the early education minister told the Education Committee that, having concluded a review of large provider groups, the government will give Ofsted powers to act across groups, not just individual settings. DfE’s funding consultation, closed on 14 September 2026, proposes making inclusion funding conditional on evidence of inclusive practice.
The clearest precedent is in children’s social care, where the Children’s Wellbeing and Schools Act 2026, given Royal Assent on 29 April 2026, creates a financial oversight scheme for hard-to-replace providers, though not for nurseries. At the time of writing, no financial oversight or transparency requirement of the kind JRF proposes applies to early years providers in England, and there is no early years pay floor above the National Living Wage.
The case for and against conditional funding
The case for conditions rests on accountability for public money; the case for caution rests on whether that money is enough to meet them.
JRF argues that when taxpayers fund most places, they are entitled to see where the money goes. Supporters cite value for money, protection against sudden closures of indebted groups, better pay and retention, and more consistent quality and SEND inclusion. DfE’s 2025 survey found staff turnover of 14% in group-based settings, twice the 7% in school-based ones. The Competition and Markets Authority’s children’s social care market study of March 2022 found some of the largest private providers carrying very high debt and recommended oversight and contingency plans.
Provider representative bodies have long argued that funded hourly rates do not cover the cost of delivery. DfE’s survey shows parent fees for 3 and 4-year-olds exceed average funding rates by between 40p and £2.07 an hour, depending on region. JRF itself warns that conditions without funding would cause closures and sufficiency gaps. Small settings fear the administrative burden, and because providers are free to decline funded places, some may leave funded provision. The CMA also declined to recommend profit caps in children’s social care, concluding they would weaken incentives to invest in new capacity.
What conditional funding could mean for nursery valuations
Conditional funding will not change how nurseries are valued, but it will change how much confidence buyers place in the profit being valued.
Valuing a nursery business rests on maintainable profit, with EBITDA used for larger and group settings and a net profit multiple for owner-operated single sites. In our experience, each part of maintainable profit in a nursery valuation is now exposed to policy.
Quality of earnings comes first: profit built on compulsory top-ups or unitemised charges is not maintainable when extras must be voluntary, and buyers will strip it out. Clean accounts and records shorten due diligence and protect price.
The funded hours mix comes next. DfE’s survey found parent fees for under-2s sit around £3 to £3.50 an hour below funding rates, while for older children they sit above, so age profile shapes how secure income is.
The ratio of staff costs to income is the third test. Staffing is the largest cost for every type of provider, from 70% of costs for childminders to 88% for school-based settings. Any pay condition would land here first.
Inspection outcomes feed directly into value. An urgent improvement grade for leadership and governance puts funded income at risk, and a needs attention grade usually brings reinspection within 12 months.
The buyer pool is the final variable. Group and private equity backed buyers remain active but would face the most scrutiny under transparency rules; in our experience that makes them more selective, not absent. Settings relying on thin pay margins or extra charges should expect sharper questions and sometimes lower offers, while well-run nurseries with good grades and transparent books will keep a deep pool of buyers.
What it means if you are selling a nursery
If you are planning a sale within five years, prepare as though the conditions were already in force; the work pays off either way.
Keep accounts that separate personal costs and support every adjustment to maintainable profit. Keep staffing records current, including qualifications, training, turnover and pay. Document your SEND policy and how inclusion funding is used, and keep your council funding agreement on file.
Timing matters: with four-year inspection cycles, a recent strong report card is a selling asset. Our nursery business exit planning guide can help you plan that timetable, and our guide on how to sell a day nursery business in the UK explains the process.
On tax, Business Asset Disposal Relief applies at 18% to qualifying gains on disposals on or after 6 April 2026, up from 14%, and HMRC’s HS275 helpsheet confirms the £1 million lifetime limit. Whether you qualify, and whether a share sale or asset sale suits you, depends on your circumstances, so speak to your accountant and a specialist childcare solicitor early.
What it means if you are buying a nursery
If you are buying, due diligence must now cover the funding relationship as closely as the building and the books.
Establish how much income comes from funded hours in each age band, what the council pays and what the funding agreement allows it to do after a poor grade. Model workforce costs at the current National Living Wage with the differentials needed to keep qualified staff, and read the latest report card closely.
Group operators and investors face closer scrutiny than single-site owners: if Ofsted gains powers across provider groups, a failing in one setting could draw attention to all of them. Structure matters too. An asset purchase means registering with Ofsted in your own name and taking on staff under TUPE, while a share purchase inherits the company’s history. Our guide on how to buy a day nursery in the UK sets out the wider process; take specialist legal advice on structure.
Scotland, Wales and Northern Ireland
Scotland already attaches conditions to funded childcare. Under the Scottish Government’s Funding Follows the Child and National Standard guidance, funded providers must meet a National Standard that includes fair work practices and a commitment to pay the real Living Wage to staff delivering funded hours. Wales is regulated by Care Inspectorate Wales, and Northern Ireland has its own system. Funding and policy here are England-specific unless stated.
Looking ahead
The social licensing model may never arrive as JRF proposed it, but as the state funds more of each nursery’s income, it asks more of each nursery. Value will follow transparent finances, stable staff, inclusive practice and strong inspection outcomes, and buyers will price the rest.
At Abacus Day Nursery Sales, you can count on us for a clear and honest view of where your setting stands. If you are planning a sale, you can arrange a confidential conversation and a free, no-obligation valuation with our selling team, or if you are buying, our buying team can talk you through settings that match your criteria.
Frequently asked questions
Is the new social contract in childcare government policy?
No. It is a set of recommendations published by the Joseph Rowntree Foundation in March 2024. Related measures, such as funding withdrawal after poor Ofsted grades, are in force, but the social licensing model as a whole has not been adopted.
Will conditional funding affect what my nursery is worth?
It can, because buyers price how durable your maintainable profit is. Transparent accounts, stable staffing, strong inspection grades and inclusive practice support value; reliance on compulsory extras or thin pay margins weakens it.
Do large nursery groups face financial oversight in England?
Not at the time of writing. The government has said it will give Ofsted powers to act across large provider groups, but no financial oversight scheme for early years has been legislated.
Can a nursery lose its funded hours because of an Ofsted grade?
Yes. Under DfE statutory guidance from 1 April 2026, councils need not fund settings graded urgent improvement in leadership and governance or not met for safeguarding. For Early Learning for 2-year-olds, a needs attention grade is enough.