Why does childcare cost so much, and how can I make it cheaper?

Authored on
06 Sep 2022



Anyone who relies on childcare will know how expensive it is – a recent study found that a third of parents pay more for their childcare than their mortgage each month.

The study, of more than 20,000 working parents carried out by Mumsnet and a dozen charities, found that 97% of parents think childcare is too expensive. So how much does the average parent pay for childcare, and how do your costs stack up to the rest of the nation?

The Coram Family and Childcare Survey is the most comprehensive overview of childcare costs in the UK. It finds that a part-time space (25 hours a week) at a nursery for a child under two costs £7,160 a year, or £6,150 with a childminder. For a full-time slot (50 hours a week) this rises to £13,700 at a nursery and £11,850 with a childminder.

But this average number hides huge regional differences. Let’s take the full-time figures. The highest cost for a nursery in England is, unsurprisingly, in inner London, where the annual cost is £16,700, compared to the lowest cost in Yorkshire and the Humberside, of £11,900 a year.

What’s more, many parents are paying for this out of their post-tax income, which means you need to earn far more than £13,700 a year to actually afford to pay for the nursery costs. In the current tax year you need to earn £15,000 a year before tax just to break even on the average full-time nursery cost, or £19,500 if you’re paying the inner London costs. Many parents with two pre-school children will start to rapidly see these costs become unaffordable.

So, what can you do to reduce the cost?

There is help available to reduce the costs, and lots of people might not be accessing it:

Tax-free childcare

This effectively means the Government gives a top-up to money you use to pay for childcare: if you pay in £8, the Government will add £2 to it, up to £2,000 a year of free Government top-up. To get this, you need to first check that your childcare provider is signed up to the scheme. You then set up an online account and pay money in – it will then get topped up by the Government, and you can pay your nursery or childminder directly from that account.

There is some criteria to be eligible: you need to be working (or on sick leave, maternity leave etc) and you and your partner both need to earn at least the minimum wage for 16 hours a week. At the top end of the scale, neither you nor your partner can earn more than £100,000 a year (including any bonuses). Find out more on the Government website.

Free hours

At some point every child in England will be eligible for some free childcare hours, and this can be used with the tax-free childcare above. Everyone gets 15 hours of free childcare after their child hits the age of three, and those who work may be eligible for 30 hours free (with the same income restrictions as above). Some people on certain benefits will also be eligible for free hours when their child is two.

However, the headline figure isn’t actually what most people get. The 30 hours is only for 38 weeks of the year, not the full 52. Lots of nurseries will spread the 38 weeks evenly across the year, and instead treat it as 1,140 free hours a year (which, spread across 52 weeks, is just under 22 hours a week). However, the Government also doesn’t pay the nursery very much for these hours, which means many nurseries will charge top-ups to help with the cost. These can include charges for meals, extended hours, nappies or activities. All of which can mean that the long-awaited free hours don’t actually save you as much as you thought they would. The best way to work out how much the free childcare hours will save you is to ask your nursery or childminder to model what you’ll pay once you’re eligible.

Child benefit

Not directly for childcare costs, but lots of parents will be eligible for child benefit and might not have got around to claiming it. For the oldest child you’ll get £21.15 a week (or £1,100 a year) and for your second child you’ll get £14 a week (£728 a year). You need to apply for it – you won’t receive it automatically.

The benefit is also restricted for those earning £50,000 or more. Essentially, you lose £1 of child benefit for every £2 you earn over £50,000, and the entire benefit is wiped out if you earn £60,000 or more. The annoying thing about the rules is that the cap applies to either you or your partner. So you could both earn £49,000 and be eligible for the full amount, but if one of you earns nothing and the other earns £60,000 you wouldn’t get anything. Check out the calculator.

If you’re not working and your partner earns too much for you to be eligible for child benefit, it still might be worth claiming as you get National Insurance credits when receiving child benefit, which go towards you being eligible for the state pension.

Check other benefits

If you’re on a low income you might be eligible for Universal Credit to help pay for childcare costs. It can pay 85% of your childcare costs, up to around £650 a month for one child, or more if you have two children. Check on the Government website or contact the CAB to see if you might be able to claim.

These articles are for information purposes only and are not a personal recommendation or advice.