| Practice area: | Education and Labour Markets |
|---|---|
| Client: | Department for Education |
| Published: | 28 November, 2024 |
| Keywords: | 2024 Childcare Education economics Labour Market Economics |
London Economics
were commissioned by the Department for Education (DfE) to investigate the state of childcare providers’ finances and the cost of childcare to parents, using information from the 2023 Survey of Childcare and Early Years Providers (in partnership with IFF Research).
In the midst of an historic expansion in government funding for childcare entitlements, it is critical to understand the state of providers’ finances in the face of an anticipated increase in demand for childcare, as well as the cost of childcare for the government, childcare providers, and parents.
Key findings:
- There was considerable variation in the financial health of childcare providers. While the average provider brought in £1.05 of income for each £1 of costs (compared to £1.03 the year before), a large minority of providers were making a significant loss. In particular, around one in three nursery class childcare settings (32%) brought in less than £0.80 of income for each £1 of costs. In contrast, two in five group-based providers brought in more than £1.20 of income for each £1 of costs.
- The unit cost of childcare, the average cost of delivering one hour of childcare, increased by 6.2% from 2022 to 2023.
- Staffing costs continued to make up the vast majority of providers’ costs (£0.79 in every £1 spent). The significance of staffing costs to providers and an average hourly pay of £13.19 per hour highlights the importance of increases in the National Living Wage on childcare providers’ finances.
- Even before the expansion of childcare entitlements began in April 2024, over a third (37%) of providers’ income came from government funded entitlements(paid to providers for providing funded entitlement hours). This varied significantly between types of providers (77% for nursery class childcare settings compared to only 16% for childminders), suggesting that expanding childcare entitlements will have profoundly different impacts across the childcare sector.
- Average hourly pay was higher for staff working at school-based providers. This was driven by both a higher concentration of highly qualified staff among school-based providers and a greater hourly pay premium associated with higher-level qualifications (relative to lower-level qualifications) at school-based providers.
- Persistent and large gaps between hourly entitlement funding rates(that providers receive for providing entitlement funded hours) and hourly parent-paid fees in 2023 (that parents pay for non-entitlement hours) highlight the importance of recent significant increases in the hourly entitlement funding rates. For example, in 2023 the average hourly entitlement funding rate was £1.07 per hour lower than hourly parent-paid fees.
The full report can be found on the Department for Education website here.
Further analysis from London Economics on childcare can be found on @le-education.bsky.social.
Upcoming research includes a comprehensive review of the childcare sector due to be published on the Department for Education website on 12th December 2024. This will cover every aspect of the childcare sector ranging from the childcare workforce and staff-child ratios to spare capacity in the sector and the cost of childcare.
Dr Su-Min Lee is a Principal Economist at London Economics, primarily working in the Education and Labour Markets team. He leads London Economics’ childcare research, which ranges from evaluating the impact of childcare policies on parental labour market choices to understanding trends in the childcare workforce and childcare affordability. He can be contacted by email at [email protected].