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The government’s hike in employer national insurance contributions (NICs) has left 96 per cent of nurseries planning to increasing fees, while UK parents already face some of the highest childcare costs in the world.
According to a survey of 728 nurseries nationwide by the National Day Nurseries Association (NDNA), one in six estimate that they will make a loss this year due to tax hikes.
The impact of higher NICs will force nurseries to raise fees by an average of 10 per cent, pushing the affordability of UK childcare even higher for many parents.
Increases to government funding for childcare providers will not keep pace with the increased costs, according to calculations by the NDNA, meaning that nurseries and parents will be left to bear the price.
Funding rates for childcare will increase by just 4 per cent on average, while nursery staffing costs will increase by an average of 15 per cent, according to the NDNA.
The UK is already one of the most expensive countries in the world for childcare – amounting to 19 per cent of average income, according to OECD estimates in 2022.
The study found that nurseries will make a loss of £2.25 per hour for 3-4 year olds, and £1.64 for 2 year olds.
The NDNA say that 80 per cent of childcare places in England will be paid for by the government from September; but that the government is “unwilling” to pay an adequate price.
“Simply put, if the sector’s most significant customer is not paying their fair share, nurseries have to find this money from somewhere else or close their doors,” said Purnima Tanuku, chief executive at NDNA.
According to the OECD’s latest estimates in 2022, for a couple with two children, childcare costs make up 19 per cent of average wages in the UK.
Further details about the estimates are in the graph above.
This makes the UK the fourth most expensive country for childcare, based on data collected by the OECD in 2022; and well above the OECD average of 10 per cent.
The most expensive country is New Zealand, with childcare costs eating up 37 per cent of the average income; followed by the United States at 32 per cent.
Full-time childcare is essential for many working families, in the period before children enter the school system; particularly since statutory maternity leave in the UK is only paid up to 39 weeks, while children do not go to school until aged five.
Childcare in the UK is far more expensive than most other European countries, including France (7 per cent of average income), Poland (8 per cent), and the Netherlands (11 per cent).
Yet analysis by the Independent suggests that costs to UK families could be higher on average.
Estimates from Moneyhelper suggest that the average cost of childcare for those with young children ranges from £125.91 per week for a part-time registered childminder, to £285.31 per week for a full-time day nursery.
Overall, these figures range from around £6,500 a year to more than £14,000 for a child under two, depending on the level of care and the number of hours needed.
The average disposable household income in the UK, meanwhile, sits at just £34,500 in 2023 according to the Office for National Statistics; this is the average amount of money, including employment and benefits, after taxes.
Under these projections, full-time childcare for a child under two could end up costing 37 to 43 per cent of household income on average.
When factoring in up to £2,000 in tax-free childcare benefits which parents can claim each year, full-time childcare with a childminder or in daycare could still cost 31 to 37 per cent of the average income, according to our analysis.
From September 2024, the government began partially funding childcare for children aged 9 months to 2 years old, with 15 hours of free childcare a week; while children aged 3 and 4 years old can be eligible for 30 free hours of childcare a week.
From September this year, the 30 hours a week of free childcare will be extended to all children under the age of five.
Currently, however, parents with children under the age of two who need full-time childcare to work may still need to pay for 25 to 35 hours of childcare alongside the 15 hours free, depending on their schedules and responsibilities.
This could still amount to £4,547 a year on the lowest end (childminder for 25 hours a week) and £8,385 on the higher end (day nursery for 50 hours a week), both accounting for the £2,000 saving in tax-free childcare.
