1 December 2023

How to make childcare cheaper


Britain has among the most expensive childcare costs in the Western world. It’s a sentence that you often see written down. But it can be hard to understand what that means until you’re actually a parent yourself. So let me put it more simply. For a while before she started school, my daughter’s childcare accounted for 70% of my post-tax earnings. This meant that my husband was, in effect, subsidising the Centre for Policy Studies to employ me. A great service to the nation, to be sure, but perhaps not the most logical choice for our household finances.

My decision to work wasn’t purely a financial one. I felt it was important for my career, for my self-worth and to set an example to my daughter. But the sheer impracticality and expense of doing so are among the reasons I worked part-time – and am unlikely to have another child. Our cripplingly expensive childcare system manages to blight two generations at once – people of child-bearing age, and their children, both existing and yet to be born.

The British state spends an enormous amount on childcare, with subsidies costing about £7bn a year. Much of this is made up by the offer of 30 hours of ‘free’ childcare a week for three- and four-year-olds, as well as 15 hours for some two-year-olds. Yet one in four parents who use formal childcare say that it still costs more than 75% of their take home pay.

Part of the problem is that, while government subsidies have certainly helped those parents who benefit, they have also helped drive up costs for families who don’t. We think of sending children to private school as a luxury for the extremely wealthy. Yet the average cost of a full-time nursery place for a child under two is £14,000, a mere £1,200 a year less than the average fee for a private primary school. And for a family with two working parents, paying up is a basic requirement. Meanwhile, nurseries themselves are struggling to cover their costs. With workforce pressures accelerated by the pandemic, around 4,000 early years providers closed in 2021/22. Nine in ten councils say they fear further closures this year.

The upshot is that many parents – and speaking from experience, mostly mothers – are working less or dropping out of the workforce entirely, as well as having fewer children. That is terrible for gender equality and inimical to the growth this country so desperately needs. But perhaps more invidious is the problems this is storing up for the next generation. Britain’s declining birth rates mean that our children will be paying for the pensions and healthcare of an increasingly aged and infirm population. While other factors are undoubtedly contributing to lower birth rates, most notably the housing crisis, the demographic time bomb facing us can in part be attributed to the simple fact that people just cannot afford to have the number of children they might like. A recent essay in Works in Progress magazine showed that one of the main reasons for the postwar Baby Boom was that it became much cheaper to raise your family, and to afford a house large enough in which to do so. In Britain today, the opposite is the case.

There are those who argue that the solution is to encourage more mothers to stay at home. But the current system of a semi-universal offer for nursery along with interventionist regulation that makes informal childcare less accessible, makes this harder too. Whether you believe a woman’s primary function is to be a caregiver or you strive for economic emancipation, the policy solutions are the same.

Parents need a range of affordable and accessible options so that they can choose what is best for their family. With the rising cost of living set to be a defining issue at the next election, politicians of all stripes are waking up to this. Many have childcare policies packaged and ready ahead of the next general election. But will any of them work?

The Truss approach

During her brief premiership, Liz Truss was reportedly considering a number of radical changes to the way childcare operates in Britain, including relaxing the ratios of adults to children in nurseries, extending subsidies, and handing money directly to parents, rather than providers. Many of these ideas were ones she had developed during her earlier role as childcare minister in the Coalition years, only to see them blocked by the Liberal Democrats.

This plan was seen (like so many of Truss’s policies) as an insane act of deregulation. However, these ideas were only radical if viewed through the prism of British politics. Childcare is in part so expensive because we have some of the most restrictive ratios in the Western world. Far from some libertarian attempt to water-down safety for children, the changes proposed would merely bring us in line with some of our closest neighbours.

English nurseries can look after up to four two-year-olds for every member of staff, compared to six two-year-olds per member of staff in the Netherlands and Ireland, and eight two-year-olds in France. Countries such as Denmark, Germany and Sweden do not set national mandatory ratios for children of any age. Given we know of no epidemic of child neglect or poor outcomes from these nations’ nurseries, we can assume some relaxing of ratios would not adversely affect children. In fact, by taking on an extra child or two, nurseries and childminders could use the additional income to pay staff more, reduce fees for parents, or invest in extra activities for the children.

While deregulation to cut costs was popular with Truss supporters, there are other Conservative MPs whose idea of family friendly policy is tax incentives for mothers to work less and have more babies. Sadly, without action, the failing system will keep costs sky-high, meaning families are denied a free choice about the kind of care that works best for them.

The Sunak solution

In March 2023, Jeremy Hunt unveiled one of the biggest interventions in childcare provision in recent years. In the Budget, the Chancellor announced plans to introduce 30 hours of free childcare for every single child over the age of 9 months, where all adults in the home work over 16 hours per week. The Government claims the package would be worth on average £6,500 every year for a family with a two-year-old child using 35 hours of childcare every week and reduce childcare costs by nearly 60%.

Because of the size of the change, the rollout will be staggered, with working parents of two-year-olds able to access 15 hours of free care from April 2024, extending to all children from 9 months in September 2024. The plan is that by September 2025, every working parent of under-fives will have access to 30 hours free childcare per week. The Chancellor also announced a small change to ratios for children under two, bringing England in line with Scotland.

‘Free’ childcare is of course, as always, a misnomer. The childcare is still being paid for: the taxpayer is just carrying even more of the cost than previously, with demand inflated enormously. From an ideological perspective, therefore, this solution satisfies no one.

To those who want more children to be raised at home, it represents a government-sanctioned effort to march them into formal settings. For free marketeers, it is a huge expansion of the state.

Meanwhile, childcare providers themselves have raised serious concerns about how they would be able to offer these additional hours when they have a staffing crisis and the government subsidy is below the market rate. The Budget offered no reassurances or announcements to tackle the regulatory burdens placed on providers, the cost of which is driving many out of the sector.

The Labour promise

In a speech in March 2023, Shadow Education Secretary Bridget Phillipson argued that ‘more ‘free hours’ for parents means more underfunded hours for nurseries, more costs piled on to providers struggling to deliver services as they are now, and more need for cross-subsidy.’ This articulated the failings of the current Government’s proposals, but failed to offer solutions.

Still, Phillipson has indicated that the issue will be a priority for Labour. In an interview with The Sunday Times in January, she said that Labour’s ambition would be to ‘make a change in education . . . like the change that we saw post-1945 with the creation of the NHS. That’s the scale and ambition that we have.’

But she was rather less forthcoming when asked how it should be paid for. In March, Phillipson repeated her promise that childcare should be more affordable and that childcare should be ‘better linked to educational priorities’. In July, ahead of a speech by Keir Starmer to outline his fifth policy mission on education, she elaborated on this, telling The Guardian that a future Labour government would parachute graduate teachers into nurseries and deliver more training for childminders.

Yet given the affordability crisis in childcare and recruitment crisis in education, diverting graduate teachers into childcare settings is hardly the answer. Nurseries would duly raise their prices given their staff were more qualified, assuming they could even find enough graduate teachers in the first place. (The number of graduate teachers fell to ‘catastrophic’ levels in 2022, down 20% from the previous year.) Increasing barriers to entry for childcare workers would only further reduce the number of people able and willing to work in the industry, hastening the closure of nurseries and driving up demand for those that remain.

While some mums and dads will always be willing to pay extra for more academically rigorous childcare from a very young age, many parents across the country simply want to know their child is safe, well cared for, accessing age-appropriate activities, and developing their social skills with other kids.

As my colleague Emma Revell has written on these pages, tuition fees, creeping credentialism like that proposed by the Labour Party only drags more young people into university education that may not be right for them and saddles them with debts they will likely never repay.

Delivering cheaper childcare

There does exist another path – one which delivers choice and affordability for families, strong returns for the economy, and brings our childcare system more in line with our European neighbours, all for no additional cost to the taxpayer.

The model proposed by the Centre for Policy Studies in its report ‘Solving the Childcare Challenge’ proposes a threefold solution: reducing the burden of government on providers, reassessing the compulsory nature of the Early Years Foundation Stage, and actively promoting the supply and use of cheaper, informal childcare and childminders.

First, as outlined above in relation to Liz Truss’s childcare plans, relaxing ratios is key to unlocking additional places without compromising on safety or requiring additional staff. While the current government did make a small tweak in this area – giving nurseries in England the option to bring their ratios in line with Scotland and take one extra child – this was not bold enough. If England relaxed child-staff ratios to French levels, we could cut childcare costs much more significantly.

But it’s not just about ratios. The Early Years Foundation Stage (EYFS) consists of a range of welfare and safeguarding requirements and a set of Learning and Development goals that must be followed by all institutions providing care for the under fives, even the most informal providers: childminders. The Learning and Development targets, which are applicable only in England, cover communication and language; physical development; personal, social and emotional development; literacy; mathematics; understanding the world; and expressive arts and design.
Compliance is monitored by Ofsted and staff are forced to spend time providing detailed and comprehensive written records, as well as providing written and oral feedback to parents, instead of playing with children.

All parents want to see evidence that their child is progressing well. But I found it slightly absurd to be given an assessment of my two-year-old’s ‘literacy’ before she could read, or reasonably be expected to. Another friend’s daughter was given a ‘set text’ of The Very Hungry Caterpillar. Few other countries have a mandatory ‘curriculum’ for toddlers, instead relying on childcare providers to recognise that it might be a good idea to occasionally read to children.

Of course, if a family wants regular detailed feedback against an extensive list of criteria, they should be free to seek out – and pay for – an organisation which provides that. But by placing this burden on all providers, we are forcing up costs and taking childcare workers’ attention away from children and on to tick-box exercises.

Indeed, contrary to Labour’s proposal for graduate-led nurseries, there is no evidence that requiring ever more qualifications and codification improves the quality of childcare. First because, by increasing the costs, the EYFS means fewer families are able to access formal childcare. Second because parents who care for their preschoolers at home are unlikely to be following a curriculum, and no one is seriously suggesting they are worse off for it. The fact that teachers say that 54% of Reception pupils are not developmentally ready for school, unable to perform basic tasks like using a knife and fork and going to the toilet, does not suggest the EYFS is giving English children a head start.

The Government should therefore learn from international best practice, and assess whether EYFS ought to be scrapped, made voluntary or have its applicability to the majority of childcare provision reviewed.

Finally, we should seek to actively increase cheaper, informal childcare and childminders. The UK’s uniquely heavy regulatory burden on early years childcare has resulted in a rapid decline in the number of childminders – often a much cheaper alternative. Numbers have collapsed in the last quarter of a century, from 103,000 in 1996 to 28,500
in 2022. This has, inevitably, driven up costs. For example, it is currently illegal to be paid to care for a friend’s child unless you are registered with Ofsted. Two police officers almost faced prosecution for sharing a babysitting arrangement. Another absurd case saw a woman battle with planning authorities over whether she was allowed to use a shed in her garden as part of her childminding business.

Greater flexibility and choice in this sector will deliver a dual benefit: enabling parents to go back to work more easily if they wish to, and allowing nurseries to be more innovative and responsive in what they offer. As well as delivering economic benefits for childcare businesses and the country as a whole, this will make life fairer for families struggling with the cost of living.

Finally, I should of course point out that making it cheaper and easier to raise children is not just about the childcare system. The recent CPS report ‘Family-Friendly Taxation’, by Ranil Jayawardena MP and my colleague Tom Clougherty, demonstrated conclusively that Britain treats families much less favourably in the tax system than almost every other developed country – and in particular discriminates significantly against single-earner families. The paper outlined how in France, the ‘quotient familial’ sees tax bills cut sharply – usually to the tune of thousands of euros – for every child you have. Not coincidentally, France has one of the highest fertility rates in Europe.

The key principle here is not to push people to have children against their inclinations. It is to recognise the extra costs of having children, and the wider benefit for society, and reshape the tax system accordingly. The report identifies a series of hugely unfair biases and tipping points in the tax system, which frequently disincentivise people from starting or expanding a family, and recommends a series of reforms to the tax and benefits system to this end, in particular a properly transferable tax allowance between married couples.


Families take many forms, but the status quo – with high cost, high subsidy and high impact on family size and in many cases parental career prospects – isn’t working for any of them. It’s harming the economy, curtailing the freedom of parents and contributing to demographic decline.

A system that denies opportunities to both parents and their children at the same time is a fundamental abnegation of the contract between generations.

It’s time to put aesthetic ideological differences aside and return to the principle that parents, not politicians, know what’s best for their best for their children. That means putting choice and flexibility at the heart of childcare policy.

That way, if my daughter ever has a family of her own, her choices can be determined by her desires alone. That’s justice for the young.

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

Alys Denby is Editor of CapX