Stark chart reveals just how expensive childcare costs have become

The government is rolling out a large-scale expansion of childcare funding, but is it enough to address rising costs and a lack of available spaces?

File photo dated 08/02/12 of a child playing. Many childcare providers in England will struggle to meet increased demand for funded places under the Government's offer, early years leaders have said. Families who do manage to secure a place are likely to face increased fees and extra charges outside the funded childcare hours because of financial pressures facing the sector, the Early Years Alliance (EYA) and campaigners have warned. Issue date: Thursday February 22, 2024.
Critics have said the government's latest funding won't do enough to address a shortage of childcare spaces. (Getty Images)

Around 85,000 new childcare places will be needed by September 2025 for the government to hit its free childcare target, the Department for Education has announced.

As part of a staggered rollout of the childcare policy, working parents of two-year-olds have been able to access 15 hours of funded childcare this month. It is hoped this will be extended to working parents of all children older than nine months from September this year, before the full rollout of 30 hours a week to all eligible families a year later.

But on Friday, the DfE published projections for the extra places and staff needed for the full rollout, estimating that 40,000 additional staff, compared with 2023, will be required by September 2025.

It said that 15,000 new childcare places will be needed for this September, and a further 70,000 more places are likely to be needed for September 2025.

In a bid to increase capacity, the government will launch a pilot scheme this summer looking at how unused space in schools could be repurposed to support childcare settings.

If successful, the Government will roll the scheme out widely ahead of the final phase of its expanded offer of funded childcare for eligible families of children as young as nine months old across England in September next year.

How childcare got so expensive

The chart below shows exactly why many families up and down the country are finding childcare costs increasingly unaffordable.

While there has been a substantial rise in average nursery and childminder costs since 2010, average household income has essentially remained stagnant.

It is just one of several examples of pay failing to keep up with inflation – a pattern that was unfolding before the cost of living crisis intensified it.

In the case of childcare, costs increased by nearly 70% between 2010 and 2022, while the average household income declined by 3%.

Figures suggest that childcare is more expensive in the UK than many other high-income countries, according to a May 2022 report by the Institute for Fiscal Studies (IFS).

The economic research institute suggests one reason for this could be that the UK is an "outlier" when it comes to child-to-staff ratios, particularly for the youngest of children.

For example, a maximum of three children per member of staff were allowed in centre-based early years childcare in 2018-19 in the UK, compared to six in Belgium and 13 in Spain.

The UK was still among the tightest for two-year-olds, with only four allowed per staff member. It was closer to the middle of the pack for three-year-olds, with a ratio of 13 children per staff member, but was still far behind Spain's ratio of 25.

The government has since tried to address this, revising the statutory minimum staff-to-child ratios in England for two-year-olds to 1:5 from September last year, claiming this change could reduce childcare costs by up to £40 for a family paying £265 per week.

However, this was challenged by the Early Years Alliance, who said this calculation assumes all nurseries are working with the maximum ratio and would continue to do so, and that all savings would be passed onto parents through lower fees.

The amount that families are spending on fees in England varies significantly, according to the IFS. Its report says that across all families, the average weekly cost of formal childcare was around £40 for one-and-two-year-olds and £30 for three-and-four-year-olds.

Some were paying less than £20 a week, and others were paying nothing, likely due to free entitlement hours, and subsidised workplace nurseries.

On the other end of the scale, 15% of families with a one-year-old in formal care spending more than £200 a week on childcare – equivalent to more than £10,000 a year.

While many higher-earning families are spending more on childcare, because they have the ability to do so, the chart below shows that difficulty paying for childcare is still fairly widespread.
Across the board, a significant proportion of families found some difficulty in meeting childcare costs. (IFS)

While the introduction of both a part-time childcare entitlement for disadvantaged two-year-olds and the extended 30-hour entitlement for three-and-four-year-olds in working families will have significantly eased pressures for some, the IFS suggests it could have pushed prices up for the youngest children.

"As an increasingly generous ‘free childcare’ offer pushes childcare providers to raise prices on paid hours to cross-subsidise the children receiving government funding," its report says.

Another barrier that could explain why families are paying more than they should is that the process of applying for certain support, including tax-free childcare, is too difficult.

Only 23% of eligible families reported having applied for tax-free childcare in 2019; 36% of potentially eligible families did not intend to apply, and another 12% were unsure about applying.

Will the new announcement help?

No 10 officials have said the number of parents taking up places under its new offer will initially be in the “thousands” but that is expected to grow by “tens of thousands” over the coming weeks.

Chris McCandless, chief executive of Busy Bees Europe, said the nursery chain has "already seen a significant increase in interest" in nursery places in recent months. "We’re really pleased that the rollout has been accompanied by the clarity on future funding rates we needed to invest in creating the additional capacity," he added.

However, research by charity Pregnant Then Screwed suggests the latest offer for two-year-olds won't go far enough, claiming recent price hikes have "swallowed up a proportion of the estimated savings".

It says a quarter would save less than £90 a month as a result of the changes, while 17% (one in five) said they'd be saving less than £50 a month. It estimated median savings to be between £100-£120, or up to £1,440 a year.

While this isn't nothing, it is a "far cry" from the government's estimate of £6,500 a year once all schemes are rolled out across all age groups, the charity says.

Pregnant Then Screwed CEO Joeli Brealey suggested that "parents are picking up the government’s tab due to underfunding".

"The fault does not lie with the childcare providers themselves but at the door of number 10. Nurseries cannot magic up money to plug financial gaps left by years of chronic underfunding, and so they have to increase their fees," she said.

“Years of neglect by successive governments has led to a staffing crisis and a deterioration in provision. The new childcare schemes will increase demand whilst supply dwindles. Without swift investment and a workforce strategy, the rollout of these new funded hour schemes could be the match in the powder barrel.’’

The government has said it is confident that the childcare sector is ready to deliver the offer and make sure parents have the childcare they need.

But Labour pointed to an analysis of Ofsted data that suggests the number of childcare places fell by more than 1,000 between March and December last year, ahead of the anticipated increase in demand for places.

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