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The changing cost of childcare

Report

Early education and childcare can have a critical impact both on helping children to develop and in supporting parents (especially mothers) to work. But childcare can also have a significant impact on the disposable income – and, hence, living standards – of families with very young children. Rapidly rising prices and a wider ‘cost of living crisis’ have seen debates on the extent and design of support with childcare costs move up the political agenda in recent months.

In this report, we discuss how the cost of childcare has changed over time, and how it varies across the country and between different types of families. While methodological issues mean that common international comparisons overstate the degree of difference between England and other countries, we show that England remains an expensive country for childcare even after correcting for the most significant issues. This could be linked to staff-to-child ratios that are tight compared with most European countries, though there are trade-offs in setting these legal limits that could justify this policy choice. And, while there is a wide (and often confusing) range of government support for early education and childcare in England, we show that take-up rates differ widely across these programmes.

Key findings

  1. More than half of families with a pre-school-age child made no payments towards childcare in 2019. Among families whose children are aged 1 and 2, this is due to families either not using childcare (20%) or using unpaid, informal settings such as care from grandparents (33%). 85% of children aged 3 and 4 use some formal childcare; two-thirds of these households pay less than £20 per week for it. Half of 3- and 4-year-olds do not take up their full entitlement to funded childcare hours. Greater support with childcare costs (especially at younger ages) could help these families use more formal childcare, but will not immediately ease existing pressures on their budgets.

  2. While many families have low or no weekly childcare costs, some families pay very high amounts. This is most strongly related to the age of a child – among families using formal childcare, the median family with a 1-year-old spent over £90 a week in 2019. This falls to around £45 among 2-year-olds and less than £5 for 3- and 4-year-olds. A quarter of families using formal childcare and earning between £20,000 and £30,000 a year spent more than £100 a week on childcare for their 1- to 2-year-old – equivalent to more than 17% of their pre-tax income.

  3. Overall, 16% of families using formal childcare for a pre-school-aged child report finding it difficult or very difficult to manage these costs. The share is somewhat higher in the middle of the income distribution; a fifth of families earning between £30,000 and £65,000 and using formal childcare say they find it difficult or very difficult to manage their childcare costs. Among all families with a child aged 0–4 (regardless of whether they use formal childcare), a tenth report difficulty meeting childcare costs.

  4. Location is an important driver of costs. Among formal childcare users, median spending per week was highest in the East Midlands (around £40) and lowest in London (under £10). But some families in London pay huge amounts per week – at the 90th percentile, weekly childcare spending in London stood at nearly £350. That is more than double the 90th percentile in most other regions.

  5. The cost of childcare in England is high compared with other countries, and has risen quickly over time. According to data from one survey, the cost of a part-time nursery place for a child under 2 grew by 60% in cash terms between 2010 and 2021 – twice as fast as average earnings, and much higher than the 24% growth in overall prices in the same period.

  6. Childcare ratios are tighter in England than in most other European countries, particularly for younger children. England (and the other UK nations) allows the smallest number of 1-year-olds per member of staff in Europe, and only Norway has tighter ratios for 2-year-olds. Ratios for 3- and 4-year-olds are considerably looser and much less likely to act as a binding constraint; in 2021, at least 40% of providers took on fewer 3- and 4-year-olds than the staffing ratios would have permitted.

  7. While some parts of the early years system are providing substantial support with childcare costs, significant improvements to tax-free childcare are needed. While over 90% of eligible households are aware of the 15-hour free entitlement for 3- and 4-year-olds, only 4 in 10 parents of pre-school-aged children had heard of tax-free childcare in 2019. Even once the scheme has been explained, nearly 40% of potentially eligible families say they will not apply – often due to confusing eligibility rules or perceived hassle of the application process.

Find out more

Press release
New analysis from IFS examines how much families with young children are paying for formal childcare in England.