Childcare costs drop 56% - but not for everyone

Families in England have seen a significant reduction in childcare costs in the first year after the government rolled out free childcare hours for children under three.

But while working parents are reaping the benefits, others are being left behind as the sector grapples with rising costs and a widening funding gap.

The cost of part-time nursery care for children under two has fallen by 56% in the past year, now averaging £70.51 a week, according to the latest Coram Family and Childcare survey.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Full-time nursery places for under-twos now costs £238.95 per week on average, a fall of 21.5%. While fees for two-year-olds have dropped 22.6% on average for 50 hours a week to £225.70.

“This year’s survey shows just how different the picture can be for families with funded support from the government, and the new entitlements are a very welcome step towards making childcare affordable for working parents and easing the difficult choices around work and care that parents have faced for many years,” says Lydia Hodges, head of Coram Family and Childcare.

How the free childcare scheme works

The key reason for the substantial drop in childcare costs is the roll-out of the government’s new funding for working parents.

Since April 2024, eligible working parents of two-year-olds have been entitled to 15 hours of funded childcare per week. From September last year, this was expanded to include 15 hours of free childcare for children aged nine months and up.

From September 2025 working parents of children under 5 will be eligible for 30 hours of funded childcare per week.

At the time of the roll-out the government hailed it as a transformational shift in childcare policy, ensuring that hard-working parents get the support they deserve.

A ‘two-tier system’?

However, it isn’t good news for everyone. Families who don’t qualify for the government-funded childcare – either because they are not in work, don’t earn enough or do not meet other eligibility criteria – have seen their average nursery costs rise significantly.

Parents who don’t get the government support have seen the cost of sending a child under two to nursery rise by £105 a week on average, while fees for two-year-olds have risen by £100 a week.

“While it is positive that early years places are becoming more affordable for those families who are eligible for funded places, it’s clear from today’s findings that the early years sector in England is fast becoming a two-tier system,” says Neil Leitch, chief executive of the Early Years Alliance.

“With the bulk of the early entitlement offers skewed towards working families, more and more children from disadvantaged backgrounds – who we know benefit the most from early education and care – are at risk of being frozen out of accessing affordable places.

“Add to this the fact that children with special educational needs continue to find it more difficult than their peers to access provision, and there’s no doubt that under the existing system, the children most in need of support are now the least likely to be able to access it.”

The problem is even more pronounced for children with special educational needs and disabilities (SEND), with fewer than one-third of local authorities reporting enough places for at least 75% of the children in their area with SEND

Scotland and Wales see costs rise

In Scotland and Wales, where the new entitlements are not in place, parents have seen prices surge instead.

In Scotland nursery costs for under-twos have risen by 6.9%, while in Wales the increase is even steeper at 9.7%.

“The system needs to be rebalanced to ensure that all children have the best start in life during their essential early years,” says Hodges. “Parents who are not eligible for the entitlements are unlikely to be able to meet the cost involved in giving their children the same amount of early education that other children get for free, and many children with special educational needs and disabilities are still finding it hard to get a place.”

Nurseries face funding shortfalls

Despite the reduction in costs for some parents, nurseries are struggling. Ofsted data reveals that 70 of the 149 local authorities in England have seen the number of early years places decline over the past six years.

Fees outside of the funded hours are also on the rise as nursery providers pass on the increase in employers National Insurance Contributions (NICs) and other operational costs.

“At last, childcare costs are coming down after years of relentless increases – a milestone worth celebrating,” says Joeli Brearley, founder of Pregnant Then Screwed. “But this progress comes with challenges. SEND provision remains woefully inadequate. National Insurance hikes will push up costs outside of funded hours, and a looming crisis in availability threatens to leave families stranded.

“Many nurseries may even opt out of offering funded hours altogether, as funding fails to cover the true cost of care. Lower fees are a step forward, but without further investment, accessibility and quality remain at risk.”

What next?

Early years experts are urging the government to go further to prevent inequalities from widening.

“Labour repeatedly promised to prioritise the early years,” says Brearley. “They paid lip services to the critical function it plays in supporting a robust economy and improving outcomes for children. We are seeing no evidence whatsoever that childcare and early years education is being prioritised now that Labour is in Government.”

Recommendations include scrapping work requirements for free childcare to ensure all children have equal access. A workforce strategy is needed to boost nursery staff recruitment and retention. Plus, ring-fenced SEND funding to ensure children with additional needs are not left behind.

“As part of this year’s survey, for the first time we spoke to parents on their views and experiences of childcare, and many highlighted the positive impact that it has had on their child’s independence, development and happiness,” concludes Hodges.

“These are things we want for all children, and we call on the Government to commit to immediate and longer-term actions so that no child misses out on this vital boost to their outcomes.”