Expansion of Early Learning and Childcare – Reinstatement of 1140 statutory duty - Business and Regulatory Impact Assessment (BRIA)

5. Competition assessment

5.1 As highlighted in section 1, the ELC sector operates as a mixed economy model with a mixture of public, private and third sector providers. For many private and third sector providers their business model is built around offering a mixture of funded hours and paid for hours (or non-funded hours), with the latter estimated to account for, on average, the majority of income for private sector providers (on average, around two thirds of total income).^[17]

5.2 As set out in the June 2019 Business and Regulatory Impact Assessment,^[18] which was produced to support the introduction of the Children and Young People (Scotland) Act 2014 (Modification) (No.1) Order 2019; and the Children and Young People (Scotland) Act 2014 (Modification) (No.2) Order 2019, the key potential impacts on competition in the sector, with regards to where the funded hours are delivered, will be determined by:

• how local authority plans for expanding capacity in their own settings takes account of the local market for ELC and in particular, overall capacity across all sectors;
• the full introduction of Funding Follows the Child, which will see all providers having to meet the same National Standard in order to offer funded ELC; and
• the ease with which providers can apply to deliver funded ELC.

5.3 In addition the impact of the pandemic may have disproportionate impacts on some providers, which could, for example, reflect variations in underlying financial positions prior to the onset of the pandemic.

5.4 The latest evidence from local authorities indicates that, in November 2020, the proportion of funded ELC hours delivered by providers in the private, third and childminding sectors had increased to 27% from 23% in 2017-18. However, it will not be until 2022-23 (the first full financial year of 1140 hours being available to all eligible children) that a full assessment of changes in market share can be made.