Proposal for Transforming the Childcare Sector

(In Mandarin): [Please refer to Pg 690 for Vernacular Speeches.] Childcare centres in Singapore first started in the 1970s. Back then, there were only a few private and non-profit operators in the business. Children between the age of four and six could be enrolled in childcare centres or kindergartens. However, because kindergarten school fees were much lower, kindergartens became the primary choice for parents looking for pre-school education for their children.

Then in the 1990s, childcare centres started to flourish because more double-income families appeared. In the past 10 years, the childcare industry has expanded at a very fast pace. Childcare centres became a common sight at the workplace.

In the beginning of the year 2004, there were 651 childcare centres. This number has increased to 987 by June this year. During this period, the number of children who enrolled in childcare centres increased from 38,000 to more than 75,000. So, you see more and more childcare centres in housing estates. There is a lot of demand for childcare centres in housing estates. In fact, the demand for childcare centres outstrips supply.

Inclusive of children under infant care, childcare centres currently take care of 90,000 children. This number is similar to 93,000 who are enrolled in kindergartens. Enrolment for kindergartens has been decreasing steadily over the past few years. If this trend persists, there will be more children enrolled in childcare centres instead of kindergartens. In fact, childcare centres now play a very important role in our society.

At the start of 2004, the average fee for full-day childcare services was $572, but this has increased to $699 by the end of 2008. Currently, the average fee is $831.

In 2008, the Government increased childcare subsidies. The monthly subsidy for full-day childcare services increased from $150 to $300. Now, based on the above statistics, we can see that average fees for childcare services has increased in tandem with the increase in Government subsidies. If we were to look at the fees of private childcare centres, I am sure that the fees have increased much more than the increase in Government subsidies, because their labour and manpower costs have gone up rapidly. Today, an article in Lianhe Zaobao reported on the rental woes faced by private operators of childcare centres.

According to a recent survey by Lien Foundation, 90% of users of childcare services feel that pre-school education is expensive or very expensive. The survey also pointed to a serious problem: childcare fees are so high that it is deterring many married couples from having more children.

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Is it possible for us to have good, affordable childcare services for the masses? I believe it is possible. Now, let me elaborate in English.

(In English): In the childcare industry, there are many private operators, most with one or a few centres, while several run chain stores. We also have non-profit operators, dominated by NTUC First Campus and PCF Sparkletots. They are called Anchor Operators, so determined after an exercise in 2009. The criteria used included: (a) $5 million paid-up capital, (b) non-profit, and (c) without any religious or racial affiliation.

Anchor Operators function mostly from HDB void decks, at rents of between $2 and $4 per square metre, as disclosed by MCYS. For a typical centre of 400-500 sqm, this means monthly rent of $1,000 onwards. They receive generous set-up and furnishing grants for each new centre. In addition, they get recurrent grants for manpower development and learning programmes, estimated to go into $30 million per year.

MCYS publishes upcoming new centres from HDB and SLA. From its website, I see just a few centres available to private and non-profit operators. Yet, at the opening of the 100th NTUC centre in October last year, NTUC declared it will open 50 new centres over the next two years, which is one every fortnight. PCF, too, had been growing just as rapidly in the last three years. Just five years ago, PCF was a small childcare player. Today, it is number two with 90 centres, just behind NTUC. The many new centres by these two operators do not match the small number of published centres available to non-profit operators. Are they given unpublished quotas?

We are told that the role of non-profit and Anchor Operators is to bring cost down while maintaining quality. Sir, there is no magic in non-profit or in Anchor Operators. The lower fees they provide can be matched by private operators. I will now demonstrate that if private operators get the same benefits as non-profit and, indeed, Anchor Operators, they had shown that they could match the fees of non-profit peers.

Financial modelling for childcare is straightforward. The main start-up cost is renovation, fitting out, and investment in resources. Set-up cost can be high, running into a few hundred thousand dollars per centre.

In a typical centre paying competitive rents, manpower and rent account for some 80% of all on-going operating costs. Private operators function from landed houses, commercial and Government-owned buildings or purpose-built HDB void decks. Tenancy is often subjected to bidding. When tenancy expires, there is usually open bidding or adjustments to market rent. Competition has caused rents to be in excess of $10,000 to even as high as over $40,000 per month in recent tenders.

Anchor Operators get choice new sites regularly at highly subsidised rents. They receive start-up, furnishing, maintenance and recurrent grants. These give them huge operating benefits over competitors.

The difference in monthly rent between non-profit and private operators can be $15,000 per month or more. Divide $15,000 by a typical centre enrolment of 75 children, that works out to around $200 cost advantage per child per month. With setup grants, Anchor Operators need to provide less for amortisation of investments. They get ongoing grants to defray costs. Yet, with these cost advantages, non-profit's median fee is currently just two hundred over dollars lower than that of private operators. We can find private centres whose fees are not much higher than that of the Anchors. Are the Anchors, with these cost advantages, really doing enough to keep fees affordable?

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Sir, there are other industry data to support my claim. In a parliamentary reply this year, MCYS disclosed that EtonHouse, a premium operator whose fee is $1,500 per month, charges only $728 at its Hampton Preschool. The centre is a collaboration with PCF. PCF secured the site at low rent, and can enjoy other grants. EtonHouse is responsible for programme delivery, set-up and pedagogy. According to a speech by Mr Wong Kan Seng in 2009, EtonHouse manages the centre and was selected because PCF wanted to work with a private operator who could deliver "high quality programmes". While there could be variations in operations compared to a typical EtonHouse centre, the fact is, EtonHouse could deliver "high quality programmes" at less than half of its usual fees when it operates in a void deck that enjoys subsidised rents and grants.

In the 1990s, Government buildings started to provide for workplace childcare. There was an interesting practice then to charge $1 or other token monthly rent for purpose-built childcare facilities which catered to children of staff working in the building. Bids were called. I noted that in open competition, these sites went to established private players whose own centres charged in the mid to upper price range. The condition for low rent then was that the fees for children of staff in the buildings must be kept low. Premium private operators could match the prevailing fees of non-profit operators.

Today, costs are escalating due mainly to rent and manpower. Manpower cost affects all in the industry. Anchors with recurrent grants can better retain staff, head-hunt from other centres and deal with rising costs. Rent is steadily rising in our competitive market. This has caused fees to rise. Out-of-pocket payments by parents in many private centres today are higher than before subsidies were increased in 2008. MCYS has no control over fees. Centres just need to give "ample" notice to parents, which MCYS recommends as three months, and then fees will go up.

The Government has announced new measures for the industry. While they may be initiated with good intent, I fear it could end up creating more unfair competition, destroying the diversity and innovation in our current system.

I have a proposal to bring costs down while pushing for quality and diversity – childcare as a public good with private partnership through contestability.

I noted that in delivering public goods such as transport, the Government has pumped billions in rail and bus investments without expecting payback from private operators or charging infrastructure at market rent to them. We are told this is to bring the cost of public transport to a level that the public can accept. If we wish for young working couples to be able to afford childcare and be encouraged to have more children, then we have a case to use a public good's approach for childcare.

Government can build and lease out centres at managed low rent. All existing centres can come under this model. Based on answers in Parliament, there are 290 void deck centres for non-profit and 176 for private operators in void decks and JTC buildings, and another 52 in Government buildings. That is 518 centres, roughly 52.4% of all childcare centres in Singapore. With 200 more new centres to be built mostly in Government-controlled spaces, the share of sites under Government control will rise.

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Old schools, disused community centres and other SLA spaces can be purpose-built by the Government into mega childcare facilities, even housing different operators under one roof. Childcare generally should be within 2-3 km of workplaces or homes. Many small void decks in new HDB blocks are not ideal for childcare, limiting options in new towns. We can have mega childcare sites as long as we ensure it is within easy access by parents, with roads and parking well planned.

We can utilise unused land parcels next to primary schools. There are small plots around some primary schools which are not big enough for meaningful commercial projects. We can tap on the infrastructure of the schools to add new pre-school facilities. This will make use of unutilised space, save on infrastructure costs and cultivate exchange between Primary school and pre-school.

The Government can negotiate as main tenant with large private landlords for sites as a bloc to supplement their bank of childcare sites. It can work with property developers who get additional Floor Area when they set aside pre-school space at cheap rents and let the Government use the space for any type of operators. We should actively pursue all options to increase the State's childcare bank to cater to the mass market.

How do we allocate these centres? Rather than have more Anchors, I have another suggestion. The Anchor concept has skewed the market. It is like giving a boxer super gloves and energy boosters while tying the hands of the competitor and asking them to fight each other. The stated objective of the Anchor Operators was to "develop childcare operators that would set the benchmark for quality and affordable childcare services."

It may have allowed Anchor Operators to achieve higher quality as they get resources, economy of scale, and certainty of their leases. Is it fair to expect other operators to keep pace? Other operators get little or no state funding. They hesitate to invest, worried if others will outbid them for their centres at each renewal, which will wipe out sunk investment. New HDB sites are so few compared to unannounced sites for Anchors. Anchor Operators could lure their staff away with scholarships. Instead of encouraging other operators to step up, it can cause some to think short term and extract as much out of their investment while they can.

We can apply contestability. Contest clusters of sites openly based on concept rather than on rent. This was done before, when Government building sites charged token rent and selection was on other factors, such as quality and fees.

There is no need for a one-time selection of new Anchor which will only strengthen a few selected ones and weaken everyone else. Worst, it may become impossible for new operators to enter the market, killing off future innovation. We need active and fair competition to raise standards and to continuously drive innovation.

Recurrent and other grants should apply to all qualifying participants as long as they meet strict selection criteria on fees and quality. There should be no differentiation between private and non-profit operators. We already know what the current Anchors can do with the support they had been given. Why have we been limiting ourselves to think only selected non-profit players can bring cost down? Let us open up and see how all others, including private operators, can benefit from that in terms of price and quality, if given similar support. I believe fair competition may even force current Anchor Operators to better their pricing, ultimately benefiting consumers.

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New operators can surface from time to time. Small operators may band together into economic groups to better compete. Contestability will drive diversity and quality. Operators cannot increase fees without approval. The Government will regain control over the fee process to ensure affordability.

Government can better direct its key programmes. MCYS had found it hard to get private operators to go along with some of its programmes, such as SPARK. Last month, we were told only 115 pre-schools had attained SPARK accreditation, of which just 39 were private operators. This is way, way below the target of 85% of all centres to be SPARK-tested by 2013, a figure established by Minister of State for Education, Mr Masagos in November 2010. We can allow only SPARK-accredited operators to contest these sites.

There may not even be a need for state-run pre-schools. The call for nationalisation was made by many frustrated with differing standards and high costs. We can improve quality even at the low-cost segment by having a critical mass of centres available in this public-good model, and the state regulates to steer quality and pricing. It can designate some centres for the low-income group by packaging centres for different market segments in each tender exercise. While this proposal is in the context of childcare, it can also be used for kindergartens.

In summary, I am calling for childcare to be a public good with fair contestability of sites at managed rents for all types of operators, with tighter control of fees and quality by the state. This will benefit all Singaporeans as fees will drop industry-wide while preserving diversity and driving up quality and innovation. I hope the Government can carefully consider this proposal.

Mr Deputy Speaker, may I get your permission to distribute the handout? [Copies of handout were distributed to hon Members]. Mr Deputy Speaker, Sir, I would firstly like to thank Mr Yee for his views and suggestions for the childcare sector.

Obviously, this is an issue close to the hearts of Singaporeans. It is also an area where the Government – especially MCYS and MOE – has paid close attention and made significant efforts. Over the last few years in particular, we have invested in significant initiatives to provide parents with more accessible, affordable and quality childcare and kindergarten options. I think these are the three points raised by Mr Yee in his statement just now.

Allow me, Sir, to briefly share some examples. Through the Child Care Masterplan introduced in 2008, we have improved accessibility. More than 200 new childcare centres were set up. Today, we have close to 1,000 childcare centres across the island, providing up to 90,000 places. This is an increase of about 40% over four years. Over the next five years, we will be providing another 20,000 childcare places to meet the increased demand.

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To make childcare more affordable, we raised the universal childcare subsidy in 2008 from $150 to $300. Sir, if Members could refer to the handout that I have distributed, they will get details of the enhancement that we have provided in supporting families for their childcare fees.

More recently, we have enhanced childcare financial assistance for families with household incomes up to $3,500 and we introduced a per capita income criterion to allow larger families to receive more subsidies. Parents can also utilise funds from the Child Development Account (CDA), for which Government provides a one-for-one matching grant, to offset the cost of childcare fees. With this combination of subsidies and financial assistance, a family earning $2,000 a month for example, may pay as low as $15 per month out of pocket at a typical childcare centre at a HDB estate.

Mr Yee's reference to the trend in average fees in the industry may not provide a very good picture of affordability for the majority of low- and middle-income families since average fees are skewed by high-end centres. May I, Sir, point to the handouts, which show the trend in median fees for the industry and for childcare centres that operate in HDB estates. As you can see, we raised subsidies by $150 in 2008, the industry median fee for childcare increased by $120. So, parents are still $30 better off. If they use a centre in the HDB heartlands, they are about $80 better off even after taking into account fees over the years. For the lower income groups, Sir, they would have received additional subsidies.

Nonetheless, we acknowledge that families face rising costs and there is room to do more. There is always reason for us to do more, whether in terms of accessibility, affordability or quality. This is not a sector where we want to say we have reached the peak. This is a sector where we want to seek continuous improvement, just like the education sector. As the Prime Minister has mentioned in his National Day Rally speech, we will look into ways to make childcare and infant care more affordable for low- and middle-income households.

Let me come to the issue of quality, Sir. To improve quality, we raised the qualification requirements for kindergarten-level teachers and edu-carers of younger children. We worked with training providers to increase training courses and places. Generous scholarships and bursaries were given out. Today, more than 80% of childcare centres have at least three out of four of their N2, K1 and K2 teachers with a diploma in pre-school education.

We have also extended curriculum and systems support to pre-school providers. MCYS' Early Years Development Framework, together with MOE's Kindergarten Curriculum Framework, provides guidance to centres on designing quality programmes. MOE's Singapore Pre-school Accreditation Framework (SPARK) also helps centres evaluate and improve the quality of kindergarten-level programmes.

Sir, Mr Yee has raised some concerns on our Anchor Operator scheme. Let me also take this opportunity to explain to the House how the Government extends support to the different operators in the childcare sector. Broadly, we adopt a three-pronged approach as follows.

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First, significant support goes towards the entire sector as a whole. We support all centres with measures to help raise quality and to develop a steady supply of trained manpower. These come in the form of programme and curriculum guidelines, quality standards, subsidised consultancy, training and scholarships, and resources on good employment practices.

At the second level, Sir, we provide additional support to non-profit operators. We do this because non-profit operators have a social mission to provide affordable services to families and children and, in particular, extra help to those who have greater financial or other needs. This is in line with our objective of greater support for these groups of children and families. We do this through providing development grants to non-profit operators to set up centres in the HDB heartlands. Rental rates for these sites are also subsidised so that the operators can offer more affordable fees.

Third, we have an Anchor Operator Scheme – a point alluded to by Mr Yee – where we provide additional support to non-profits who meet additional criteria and who commit to stringent terms and conditions. The additional support is to enable them to significantly increase childcare places that are both of good quality and affordability for the mass market, that is, those from low-to middle-income families.

The basic entry criteria to the scheme are made known. In addition to development grants and subsidised rental rates, Anchor Operators also receive a recurrent grant to defray the costs of recruiting and developing good quality teachers for their new centres. In other words, whoever wants to take advantage of the Anchor Operator scheme and wants to receive additional grants and support, is entitled to do so. It is open to them, even if you have a commercial entity who feels that it wants to do that, can always set up a non-profit arm. And if they qualify and fulfil the conditions, they are also eligible to become an Anchor Operator and receive the additional support from the Government.

In return, Sir, Anchor Operators are held to higher quality targets than the rest of the sector, and must commit to delivering their childcare programmes at affordable fees. Anchor Operators also need to be inclusive and secular, not catering to any one ethnic or religious group. They must also be financially able to sustain their operations and achieve sufficient scale, in order to meet Government's objectives over the long term.

Since the scheme was introduced in 2009, there are now close to 200 childcare centres operated by the two Anchor Operators across the island. This is a three-fold increase and many of the centres are spread out across all the HDB estates. All Anchor Operators charge fees that are below the market median. Few of these would have been possible without the scheme.

Overall, Sir, this tiered approach has enabled us to improve the childcare landscape significantly. Today, we have a diverse range of operators, providing parents with choices. At the same time, we have a strong core of non-profit providers offering affordable, good quality services. We want to grow this core over time so that we can reach out to more low- and middle-income families, and ensure no child is denied access to good quality childcare.

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Moving forward, the Implementation Committee for Enhancing Pre-school Education is reviewing the design of the scheme. We intend to expand the coverage of the scheme by attracting and admitting more operators so as to bring benefits to more parents and children. That is one point that Mr Yee raised, and that is with regard to the fact whether having Anchor Operators affects the ability of the commercial operators to grow.

Based on the statistics that we have, Sir, we have seen growth in both the Anchor Operator market, as well as growth in the commercial sector. But the Anchor Operator scheme is very important because we are using tax payers money. We have to make sure that we award it to those who are non-profit and provide a public service, who are able to contain fees and yet at the same time provide good quality childcare services to the public, particularly the low- and middle-income families.

Sir, I want to say that notwithstanding these improvements, we know we can always do better. And we want to do better, so as to provide even better support to parents and to better prepare our children for the future.

The Prime Minister's announcements at the National Day Rally are indeed a concrete reflection of this. They represent a new stage of development for our pre-school sector; a new milestone on a continuous journey which we have started years back. In navigating this journey, Sir, we value and take seriously feedback, and we will continue to do so. This includes inputs from parents, pre-school professionals, parliamentarians, members of the public and Mr Yee himself. We study and take them into account in setting directions, developing policies and implementing programmes.

Often, however, such feedback and views, including those from experts, are mixed. Just over the past few weeks, we can see that some Singaporeans are of the view that the Government should nationalise and standardise the provision of pre-school, while others prefer a diversity of programmes and players so that parents have more choices. Some parents want more structured curriculum and programmes, while others feel quite the opposite.

There is, Sir, no unanimous agreement on what is the best approach for Singapore. It is not an easy issue with clear solutions. We will consider the diverse feedback we receive and study other systems. We will decide based on our circumstances and the stage of development of the sector, and especially the interest and well-being of our children. That is of paramount consideration. This is what we have done in the past and will continue to do.