- The education secretary has called for the Competition and Markets Authority (CMA) to launch a review into nursery costs (source: SoS letter to CEO of CMA | Department for Education)
- Childcare can now easily cost more each month than mortgage payments – but costs have been rising for nurseries too
- Steps you can take to cut the cost of childcare
Laura Suter, director of personal finance at AJ Bell, comments:
“The government announced in its Autumn Budget that it wanted to place childcare costs under the microscope – and today marks the start of that process. The CMA will dig into the childcare sector, to see how the extended ‘free’ hours scheme for pre-schoolers is working in practice, for both nurseries and parents.
“The government’s expansion of free childcare hours has been a lifeline for lots of families, particularly when household budgets are still under pressure from rising prices. Childcare can now easily cost as much (or more) than a mortgage payment each month. It means that cutting the cost of nursery or a childminder from when a child is nine months old will have made a real difference for many families and helped some parents get back into work or increase their hours.
“But while parents are understandably focused on the cost of childcare for their kids, nurseries themselves are facing a very tricky balancing act. The funding they receive from the government for those free hours often doesn’t fully cover the actual cost of providing the childcare, particularly once you factor in rising wages, higher energy bills, food costs and rents. For example, for a three and four year old, the government will pay £6.42 an hour for their funded hours, rising to £8.90 for two-year-olds on the free hours*. For many nurseries, this doesn’t match what they were previously charging parents.
“In the past, nurseries could often absorb some of that shortfall because younger children weren’t eligible for the free hours and parents were paying full fees. Now that the scheme has expanded to much younger children, there are fewer full-paying places helping to balance the books, which puts a lot more pressure on providers.
“That’s why some parents are seeing extra charges for things like meals, nappies or activities, or finding that funded places are limited. Of course, parents want clear and transparent pricing, and nobody wants unexpected costs appearing on a nursery bill. But nurseries are also trying to stay financially viable at a time when many have seen their costs soar. The fate of each nursery is different, depending on whether they are part of a large chain or not, and where they operate. But many have closed in recent years, citing high costs and unsustainable financials.”
How to cut the cost of childcare
“There are some ways parents can ease the strain of childcare costs on their finances too. One of the biggest is making sure they’re using the tax-free childcare scheme if they’re eligible, which is effectively free money from the government. For every £8 a parent pays in the government adds another £2, up to £2,000 per child each year. This can be used alongside the funded childcare hours and also for some after-school clubs, holiday clubs or other wraparound care – so don’t just see it as a pre-school benefit.
“On top of that, lots of parents who are eligible for child benefit aren’t claiming it. The rules around the maximum income you can earn to be able to claim the benefit changed recently, meaning more people are now entitled to the payout – but it’s still chronically unclaimed. Parents should check whether they can claim, as it’s worth a chunky £1,407 a year for your first child and £931 a year for each child after that. It won’t pay for all your nursery costs, but it’s a welcome boost to family finances.”
*Source: Department for Education – Early years funding: 2026 to 2027. Average national rate, the rate paid varies by local authority region.
