Childcare: The fee cap challenge

With Monday's announcement that 169 childcare centres have joined the new partner operator (POP) scheme, thousands of parents with children in these centres will pay less from next year.

There could be wider implications for parents with children in other childcare centres, too.

Apart from the POP scheme, there is also the anchor operator (AOP) scheme.

The POP scheme supports small and mid-sized operators, while the AOP scheme is for larger operators that offer at least 1,000 places; they get priority in securing Housing Board sites for centres.

Both types of operators get government grants but have to cap fees.

The caps are $720 a month for full-day childcare programmes at AOP centres, and $800 for POP centres.

All POPs also have to make a one-off fee reduction next year.

Currently, AOP and POP centres make up about 40 per cent of the market, and this is expected to increase to half by 2020.

As their market share grows, they could have a greater influence on childcare costs and the trend of median fees rising could slow down - or even be reversed. The industry median now is $907, up from $690 five years ago.

Childcare operators that are not on the two schemes, especially those charging a few hundred dollars more than the median, may have to rethink their business plans.

Should I raise fees, when close to half the market is keeping fees low? To rein in rising operating costs, should I join the POP scheme if applications reopen in future, so I can get government funding support?

Till then, should I share resources with other small players, so I can reap economies of scale? If I still intend to charge more, how can I improve quality and differentiate myself from competitors?

It will be interesting to see how operators adapt to the change.

Hopefully, parents across all centres will stand to benefit from the greater competition.

Join ST's Telegram channel and get the latest breaking news delivered to you.

A version of this article appeared in the print edition of The Straits Times on October 23, 2015, with the headline Childcare: The fee cap challenge. Subscribe