The Price Floor
A nursery place in England costs an average of £14,900 a year. That’s more than the average university tuition fee. Parents feel the squeeze. Providers say they’re barely breaking even. The UK’s Competition and Markets Authority just announced it will examine the childcare market to figure out why costs keep climbing while quality stays patchy.
This is what competition policy looks like in practice. When a market seems broken — prices high, service inconsistent, suppliers struggling — regulators step in with a specific question: is competition working, or is something blocking it?
What Working Means
A “working” market has three features. First, buyers can compare options easily. Second, suppliers compete on price and quality. Third, new entrants can start up without hitting impossible barriers.
When all three hold, prices tend toward the actual cost of providing the service plus a reasonable margin. Quality improves because bad providers lose customers. Innovation happens because someone can try a better model and scale if it works.
When any of the three breaks, the market stops self-correcting. Prices drift away from costs. Quality stagnates. Incumbents coast.
The Tools
The CMA will use four tools to diagnose the childcare market.
Concentration ratios. How many providers serve each local area? If three nurseries control 80% of places in a town, parents have limited choice. The CMA will map this across regions.
Switching costs. Can a parent move their child to a better nursery without losing their deposit, waiting months for a place, or disrupting routines so badly that switching feels impossible? High switching costs let providers raise prices without losing customers.
Entry barriers. What stops someone opening a new nursery? Planning rules, staff qualification requirements, and upfront capital costs all count. The CMA will measure how hard it is to enter the market and whether existing rules serve safety or simply protect incumbents.
Price-cost margins. Do nursery fees reflect the cost of staff, rent, food, and materials, or is there unexplained markup? The CMA will request financial data from providers to see where money goes.
What They Find
The CMA’s diagnosis will land in one of three buckets.
Market structure problem. Too few providers in most areas, switching too hard, entry barriers too high. Fix: change planning rules, fund new entrants, mandate transparent pricing so parents can compare.
Cost problem. Providers’ margins are thin but costs are genuinely high — staff wages, training, ratios, rent. Fix: subsidy, not competition policy. The market is working; it’s just expensive to run a nursery safely.
Information problem. Plenty of providers, reasonable costs, but parents can’t tell good from bad until their child is enrolled. Fix: mandatory quality ratings, standardised reporting, clearer inspection results.
Most real markets show a mix. The CMA’s job is to weigh which problem dominates and recommend the fix that matches.
The Test
Competition policy rests on a bet: that markets, when genuinely competitive, allocate resources better than central planning. The test is whether removing barriers produces better outcomes than directly controlling prices or supply.
Childcare is a hard case. Parents aren’t just buying a service — they’re trusting someone with their child. Quality is hard to observe before purchase. Providers face strict safety rules that limit how cheaply they can operate. Local markets are small; rural areas might only support one nursery.
If the CMA finds structural problems it can fix — planning rules that block new entrants, information gaps that prevent comparison — the market might improve. If it finds that costs are just high and local markets can’t support many providers, competition policy has no lever to pull. The answer becomes subsidy or public provision, not deregulation.
The Signal
The CMA’s investigation sends a signal beyond childcare. When a market produces outcomes that feel wrong — high prices, frustrated buyers, struggling sellers — the first question isn’t “should government intervene?” but “is competition actually happening?”
Sometimes the answer is no, and the fix is to remove what’s blocking it. Sometimes the answer is yes, competition is working, and the outcome is just what this service costs in a functioning market. That second answer is harder to accept, but it clarifies the choice: live with the price, subsidise it, or change what the service includes.
The childcare investigation will clarify which kind of problem the UK faces. The tools the CMA uses — concentration ratios, switching costs, entry barriers, price-cost margins — apply to any market. Learning to think in those terms helps you see when a market is broken and when it’s just expensive.