Jeremy Hunt’s free childcare pledge leaves parents to ‘pick up tab’ as nurseries hike fees

Higher fees mean some parents are saving far less than they expected to – while higher-earning parents face dramatically bigger bills because they do not qualify for the scheme in the first place

Parents are facing a hike in nursery fees of up to 15 per cent as they pick up the tab left by funding gaps in Jeremy Hunt’s flagship scheme to expand free childcare, The Independent can reveal.

The chancellor’s £4bn extension of free care – a bid to win back voters in the run-up to this year’s election – comes into force in three weeks. But experts say the sector is being starved of funding to pay for the rollout, forcing nursery bosses to either sharply increase prices or face closure.

Higher fees mean that, despite 15 hours of care being free, some parents are saving far less than they expected to, while some are even paying more. Higher-earning parents face dramatically larger bills because they do not qualify for the scheme in the first place.

In one stark example, a parent will see her two-year-old son’s nursery monthly bill rise by more than £70, despite him being eligible for 15 hours a week of free care from 1 April.

The mother had been paying £1,080 a month and assumed the cost would fall to as low as around £800 but instead, she’s been billed £1,156 for next month. She told The Independent: “The joke is on us, really, for ever thinking there was any help or anything free from this government.”

The shortfall, nurseries claim, is because the hourly rates offered by the government under the scheme often do not cover the cost of care once bosses have met the rising cost of wages, energy and rent.

One nursery manager who feels forced to raise prices by 10 per cent says she is facing questions from anxious parents who have been “mis-sold the whole thing”.

“It doesn’t need a mathematician to work out it doesn’t add up,” she said.

It comes as new data shows 70 per cent of parents said childcare costs were about to – or had recently – gone up, with nearly a fifth of the 11,000 polled saying prices were rising by more than 11 per cent. One parent said their child’s nursery fees were rising by 15 per cent.

The Independent can also report that:

• The cost of placing a two-year-old in a nursery has risen 20 per cent since 2018
• The number of nurseries and early years services in operation has fallen from 66,600 in 2018 to 56,300 in 2023
• Nearly a quarter – 24 per cent – of nurseries and preschools said it is likely or very likely they will close over the next 12 months

With the Tories hoping for a boost in the run-up to this year’s general election, eligible working parents of two-year-olds were told in the spring Budget that they could claim 15 hours a week of free childcare.

The government claims the expanded scheme will save parents almost £7,000 a year in nursery costs when it’s fully rolled out next year, with 30 hours of free childcare for all children aged under five. This week, Jeremy Hunt said he would guarantee funding rates to early years providers for the next two years to deliver the expansion.

But, already this year, The Independent has revealed shortfalls in the expansion of the scheme with claims of delays in issuing codes for parents to access it, as well as a shortage of staffing to provide the 180,000 additional places needed.

The sector is also in the midst of a recruitment crisis and is already struggling to provide the 30 hours of free childcare for three- and four-year-olds that was rolled out by ministers in 2017.

Nurseries cover the cost of childcare through a combination of fees charged to parents and government rates provided as part of the free childcare scheme.

However, because rates do not always cover the hourly cost of care, bosses balance their books by raising fees for paid-for care and by adding a “top-up fee”, known as a consumable charge, to make up the loss income.

The Institute for Fiscal Studies (IFS) highlighted last year that the option to cross-subsidise via paid-for care was “being closed off” with Mr Hunt’s expanded scheme set to tip the proportion of children in free care from just over 50 per cent to 80 per cent.

The body has described the government funding for entitled children aged two as “generous” with a rate above market prices.

But the rate offered for three- and four-year-olds was “significantly less generous”, said the IFS.

Jo Callaghan, who runs Munchkins Nursery and Preschool in Essex with her sister Liz Makins, is putting up the prices to parents by 10 per cent as she struggles with increases in utility bills, wages and rent across her six sites.

The nursery now charges an annual fee which equates to around £8.50 an hour, up from £7.75. She’s also had to put up the consumable charge for children on “free” hours from £2 to £3 an hour and hire an extra worker to help parents understand the government scheme.

“Parents are questioning us over it as they have been mis-sold the whole thing by the government,” she said.

“I have to stress the hours are not free. It is funded but we don’t receive enough, so I’d ask parents to please not blame the nursery for having to put up fees or charge for consumables such as equipment and food.

Laura Soar’s son Jasper will qualify for 15 hours of free childcare in April but the bill for his care will increase (Laura Soar)

“We are getting 10p extra an hour this year in rates to pay [for free childcare] but the living wage has gone up 10 per cent, our bills have doubled in some of the buildings and the cost of everything has increased. It doesn’t need a mathematician to work out it doesn’t add up.”

The rise in costs means some parents will see an overall increase in fees even if they qualify for the scheme, The Independent has found.

Laura Soar, a 33-year-old charity fundraising manager from Bristol, says the cost of childcare for her two-year-old son who goes to nursery for 35 hours a week will rise by seven per cent, even though he will be eligible for free hours next month.

The overall rise is because she will be paying more for hourly childcare costs, as well as an £8-a-day consumable charge. With the scheme covering 38 weeks of the year – school term time – she also pays for all childcare hours in the remaining weeks of the year, spread across her monthly bills.

“I was just flabbergasted,” Ms Soar told The Independent. “We’d been sensible and looked ahead and first calculated the scheme would save us £300 a month, which I then conservatively took down to £200, but we never believed we’d be paying more.

“It made my partner and I feel really foolish. We felt we were doing all we could but had been completely misled on this. I can’t blame the nursery as they are doing their best in this awful position and they provide good care.

Jeremy Hunt’s flagship scheme will be rolled out from 1 April (Getty)

“The joke is on us, really, for ever thinking there was any help or anything free from this government. I feel we’re doing everything right and we’re always screwed over.”

The rollout of the free childcare expansion was sold by the government as helping to keep more parents in full-time work. Working parents who earn more than £8,670 but less than £100,000 per year are eligible.

But more than a third of eligible parents surveyed by Pregnant Then Screwed are now considering leaving their jobs or reducing their hours due to increased childcare costs.

Joeli Brearley, founder of the group, said: “Many providers are increasing costs for sundry items and for childcare outside of funded hours as a desperate attempt to cover their losses from delivering these schemes; this is drastically reducing anticipated savings.

“We’ve already seen that the roll out of the new funding has not been straightforward with many parents still waiting to hear if they will be able to secure a funded place, whilst many others are complaining that cost savings are minimal due to significant price increases for childcare costs outside of the funded hours.

“The new benefit sounded too good to be true and for many families, it will make little difference to their outgoings. Once again, parents are picking up the tab due to underfunding from the government.”

The rollout of the free childcare expansion was sold by the government as helping to keep more parents in full-time work (PA Wire)

Under the free childcare scheme, funding rates are paid by the government to local authorities, which then issue the money to providers after taking a cut of up to five per cent.

Figures show the average rate for two-year-olds given by the government will be £8.28 per hour from April, while the rate for three- and four-year-olds will rise from £5.62 per hour to £5.88 per hour.

But the funding, coupled with Mr Hunt’s Budget promise of future annual increases in line with inflation and staffing costs from next year, has not eased the fears for nurseries and preschools.

A survey of almost 450 providers by the National Day Nurseries Association in January found almost three-quarters (73 per cent) expected to make a loss or break even this year, with the average staffing bill to rise 14 per cent in April. Many also said it would help if the government stopped calling the places “free”.

The Early Years Alliance also ran a poll of nearly 1,200 providers in January and February, finding nine in 10 feared the impact of the upcoming national living wage increase on their businesses, with 81 per cent of those planning to increase fees as a result.

Chief executive Neil Leitch said: “We at the alliance remain unconvinced that that funding announced to cover both the existing and upcoming entitlement offers will be enough for settings to deliver early years places sustainably. As a result, many families are still likely to face additional costs even after the expansion has been implemented.”

A Department for Education spokesperson said: “This government is taking long-term decisions to give working families a brighter future, which is why we are making the largest ever investment in childcare in England’s history, backed by £8bn every year overall by 2026-27.

“Our plan is working, with thousands of parents accessing codes and claiming places every day, and eligible working parents with children from nine months old up to when they start school set to save up to £6,900 a year when using the full 30 hours.”