Tackling the cost of childcare for UK nurseries

Back in February, The Department for Education announced the biggest investment into the early years sector to date. By September 2025, the government has announced it is expected to invest double the amount of previous expenditure from £4bn to £8bn each year. Working parents with children from the age of nine months old will also be able to claim 30 hours of free childcare per week under the latest budget pledge.

While the government’s pledge to increase the hourly rate offered to childcare providers to help deliver the 30 hours entitlement is welcomed, there is still uncertainty across the sector as to whether the uplift in funding will be sufficient for early years settings to remain open.

At a time of such widespread financial turmoil, the increased funding rates to existing providers is essential, but external pressures facing the nurseries that remain open also need to be addressed in order for the announced reforms to be successful.

In recent months, there has been a stark increase in the closure of early years settings across the UK. In a report from the National Day Nurseries Association (NDNA), findings have shown there has been a 50 per cent increase in nurseries closing in 2022-23, compared to the previous year. Due to the closure of so many settings, the next challenge to consider is whether there are sufficient child places to meet demand.

There needs to be a fundamental shift for the proposed uplift in funding to truly help the sector accelerate forwards. External pressures, such as the cost-of-living crisis, staff retention, and the subsidiaries actually reaching the nurseries themselves, should also be considered to help the sector avoid being squeezed even further.

Furthermore, issues such as the increase in business rates and UK nurseries continuing to pay 20 per cent VAT are only compounding the tight margins for early years settings even further, and they are all within the government’s control. A private school for example would be VAT exempt, but a nursery would not. Yet both provide the same service: a setting for children to receive an education. Although this is an issue within itself, early years childcare is perceived as ‘babysitting’, rather than a stimulating environment that provides an education to young children and nurtures their emotional, physical and intellectual development.

It is also worth noting that the recent announcement is positioning the latest government reform as ‘free childcare’ rather than ‘subsidised childcare’. Yes, the first 30 hours are free — or will be for the majority of working parents by 2025 — but the objective of the recently announced cash boost will help to offer more affordable early years education, not make it a free service.

While the government’s commitment to provide a financial uplift to the sector has been welcomed, more needs to be done to ensure nurseries can be self-sufficient — and more importantly, remain open. 

Chris Reid is chief executive of Connect Childcare