| Practice area: | Education and Labour Markets |
|---|---|
| Client: | Department for Education |
| Published: | 11 December, 2025 |
| Keywords: | 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 Department for Education’s 2025 Survey of Childcare and Early Years Providers, in partnership with IFF Research.
A short report summarising key findings and policy implications can be found here.
London Economics’ analysis covered every aspect of the childcare sector, including
- Childcare provider numbers,
- Childcare places and spare capacity,
- Childcare workforce (e.g., qualifications, retention, age),
- Staff-to-child ratios,
- Overview of provider finances (with a more in-depth report to follow in 2026),
- Government support for formal childcare, and
- Special Educational Needs and Disabilities childcare provision.
Key findings:
- Overall childcare provider numbers declined, falling by 1.3% between 2024 and 2025. This was mainly driven by a 4.6% reduction in the number of childminders. Since 2018, the number of childminders has fallen by around 12,900.
- Registered places increased by 1%, supported by a 3% rise in places at group-based providers. In contrast, school-based provider places fell by 1%, and childminder places declined by 7%.
- The workforce remained broadly stable. Staff numbers grew by 1% in group-based settings but fell by 1% in school-based providers and by 5% among childminders.
- Take-up of the 15-hour working parent entitlement is driving the majority of demand for childcare among children under the age of two: 69% of under two-year-olds were in receipt of the entitlement in school-based settings, 75% in group-based settings, and 80% among childminders.
- Hourly pay rose across all provider types, increasing by 8.2% in school-based settings, 6.3% in group-based settings, and 8.7% for childminding assistants – all larger than the 6.7% increase in the National Living Wage. The share of staff earning below the National Living Wage rose between 2024 and 2025 in school-based settings and among childminding assistants but fell for group-based providers.
- A high proportion of providers supported children with SEND: 84% of school-based providers and 90% of group-based providers cared for at least one child with SEND.
- Parent-paid fees rose sharply, increasing by 7.6% to 8.7% across age groups between 2024 and 2025, with the largest increases for younger children.
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).
From 2024 to 2025, parent-paid fees increased significantly, outpacing CPI inflation (3.4% from May 2024 to May 2025). Average hourly parent-paid costs rose by:
- 8.7% for under two-year-olds (from £6.60 to £7.18),
- 8.0% for two-year-olds (from £6.56 to £7.09), and
- 7.6% for three- and four-year-olds (from £6.30 to £6.78).
Providers received the following average hourly rates for funded entitlement hours:
- £10.43 for under two-year-olds,
- £7.87 for two-year-olds receiving the working parent entitlement and £7.90 for those receiving the FRAS entitlement, and
- £5.67 for three- and four-year-olds.
The full analysis and more details about the survey can be found on the Department for Education website here.
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 a Senior Economic Consultant at London Economics, working in the Education and Labour Markets team. She leads the research on the Survey of Childcare and Early Years Providers. Ella can be contacted by email at [email protected].