Practice area: | Education and Labour Markets |
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Client: | Department for Education |
Published: | 12 December, 2024 |
Keywords: | 2024 Childcare Education economics Labour Market Economics |
London Economics were commissioned by the Department for Education (DfE) to undertake a comprehensive review of the childcare sector, using information from the DfE’s 2024 Survey of Childcare and Early Years Providers, in partnership with IFF Research.
With challenges facing the childcare sector and a raft of government reforms being rolled out, it is critical to understand the state of the childcare sector and the direction that it is moving in. London Economics’ analysis covered every aspect of the childcare sector, including
- Childcare provider numbers,
- Childcare places and spare capacity,
- Childminders,
- Childcare workforce (e.g., qualifications, retention, age),
- Staff-to-child ratios,
- Overview of provider finances (with a more in depth report to follow in 2025),
- Government support for formal childcare, and
- Special Educational Needs and Disabilities childcare provision.
Key findings:
- The number of childcare providers fell by 3.0% between 2023 and 2024, driven by the 6.6% decrease in the number of childminders. The number of childminders has fallen by around 12,800 – over a third (34.9%) – since 2018.
- However, the childcare sector workforce nonetheless grew by around 20,000, an increase of 5.8% from 2023 to 2024. This helped contribute to an increase in registered nursery places of around 44,000 (2.8%) from 2023 to 2024.
- There is evidence that the expansion of entitlement hours for two-year-olds in April 2024 has led to increased demand for childcare places, with the average group-based provider looking after 2.6 more two-year-olds in 2024 than in 2023, an increase of 16.7%. In 2024, over three-quarters (78%) of childminders looked after two-year-old children funded under the 15-hour entitlement, compared to around a quarter (24%) in 2023.
- Spare capacity in 2024 was comparable to that in 2023, with the proportion of full day places that are spare between 14% and 21% across different types of providers.
- 85% of school-based providers and 88% of group-based providers provided childcare to at least one child with an SEND.
- The average hourly cost of childcare for hours paid for by parents rose by 6.7% to 9.1% from 2023 to 2024 across different age groups, with larger increases among younger children.
- The amount received by providers to provide funded entitlement hours rose considerably from 2023 to 2024: 35.3% for two-year-olds and 12.9% for three- and four-year-olds. These increases in funding are especially important as the expansion of funded entitlements continues, to reduce the likelihood that parent-paid hours effectively cross-subsidise hours paid for by funded entitlements.
Hourly cost of childcare for parents and funded entitlements
Rising costs and unprecedented increases in government support for childcare highlight the importance of the analysis of
- hourly parent-paid fees (for hours paid for by parents themselves), and
- hourly entitlement funding rates (that the government pays providers for funded entitlement hours).
The average hourly cost of childcare for hours paid for by parents rose significantly from 2023 to 2024 more than CPI inflation (2% from May 2023 to May 2024), and in particular for younger age groups:
- 9.1% increase for under two-year-olds (from £6.05 per hour in 2023 to £6.60 per hour in 2024),
- 8.1% increase for two-year-olds (from £6.07 per hour to £6.56 per hour), and
- 6.7% increase for three- and four-year-olds (from £5.90 per hour to £6.30 per hour).
The average hourly rate that providers received for providing funded entitlement hours increased by even more:
- 35.3% increase for two-year-olds (from £5.62 per hour in 2023 to £7.60 per hour in 2024), and
- 12.9% increase for three- and four-year-olds (from £4.83 per hour to £5.45 per hour).
Historically, providers have received considerably less for providing funded entitlement hours than for hours paid for by parents, suggesting a potential cross-subsidisation of funded hours by parent-paid hours.
- The hourly funding rate for two-year-olds was previously £0.45 per hour lower than the hourly parent-paid fee in 2023, but this was completely reversed: in 2024 the hourly funding rate was £1.04 per hour higher than the hourly parent-paid fee.
- The 12.9% increase for hourly funded entitlement hours for three- and four-year-olds reduced the gap from £1.07 per hour to £0.85 per hour.
The full analysis and more details about the survey 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. Recent research includes a review of the financial health of the childcare sector published by the Department for Education website on 28th November.
Meghan Meek-O’Connor, Senior Policy Adviser at Save the Children, said “We’re seeing a decline in the number of childcare providers available to families, especially those who are looking for childminders. The 35% reduction in registered childminders since 2018 has left families with fewer options, making it even harder for families to balance work and care. It’s positive to see that the government’s contribution to the hourly rate has increased, and that the childcare workforce is increasing. This is good news for parents seeking a nursery place for their child. However, the increase in the paid hourly rate parents must pay for childcare is tough for families, at a time when they continue to tackle the wider cost of living. There is still not nearly enough provision for families on the lowest incomes, and we are urging the Government to extend the offer to those in training, those who have no recourse to public funds, and eventually those on low or no-incomes.”
Dr Su-Min Lee, Principal Economist at London Economics, said “In the midst of an historic expansion in government support for childcare, there are considerable challenges facing both parents and childcare providers. The continuing exodus of childminders is concerning, with a 35% decrease in the number of childminders since 2018, although it is encouraging that both the childcare sector workforce and number of places have increased in the past year. The hourly cost of childcare for parents for hours they pay continues to rise, and faster than inflation across the economy. In the face of these challenges, the large increases in hourly rates that the government pays providers for funded entitlement hours are a very necessary step towards ensuring the expansion of funded childcare”.
Ella Lingard, Economic Consultant at London Economics, said “During the largest-ever expansion in government childcare funding, the sector is experiencing major changes. While the rising hourly costs for parents present significant financial pressures, the substantial increase in government funding rates for entitlement hours is an important step forward for providers. These adjustments are essential to support providers and address the growing demand for childcare places, particularly for two-year-olds, as the sector adapts to challenges related to the workforce, such as the continuing decline in the number of childminders.”
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].
Ella Lingard is an Economic Consultant at London Economics, and also works within the Education and Labour Markets team. She led the analysis of the Survey of Childcare and Early Years Providers in 2024. She also works on a range of other education and labour markets research areas, such as the economic and social impact of higher education institutions. She can be contacted by email at [email protected]