More than a third of nurseries are already limiting the number of government-funded childcare hours they offer or are considering doing so due to spiralling costs.
A poll of 816 early years providers across England, conducted by the Early Education and Childcare Coalition and shared exclusively with The i Paper, paints a stark picture of a sector under severe financial strain.
Nearly one in five nurseries (18 per cent) report that they are currently operating at a loss, while almost one in ten (9 per cent) indicate that they are likely to close permanently within the next two years.
One in five (20 per cent) have had to dip into cash reserves to stay afloat, and a similar proportion are freezing recruitment or pausing expansion plans.
In addition, over three-quarters of the providers (78 per cent) who have already limited the number of government-funded places have suggested they are considering limiting them more from September.
There are also signs that support for children with special educational needs and disabilities is being cut back, with nearly half of providers either already reducing intake for children with additional needs or considering doing so from September.
The i Paper reported in March that nurseries were already planning to raise the cost of meals, trips and other extras by at least 10 per cent to cover shortfalls as the Government’s “free” childcare hours are expanded.
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Last month, many providers also warned that Labour’s expansion of free childcare will make the situation worse for many parents by forcing some nurseries to close and pushing up prices in others.
The pressure comes at a critical moment for the childcare sector, just months before the Government is set to roll out a major expansion of its flagship childcare scheme.
From September, working parents of children aged nine months and over in England will be eligible for up to 30 hours of government-funded childcare per week, a policy aimed at boosting employment by helping parents, particularly mothers, return to work.
The first stage of the expansion began in April, when 15 funded hours were made available to eligible parents of two-year-olds. Further expansions are planned for 2026.
The changes, launched by the previous Conservative government and continued by Labour, marked a significant shift from prior years when only 15 hours of funded childcare were offered per week for all three- and four-year-olds, and up to 30 hours for children in that age group if both parents worked.
While families and campaigners have broadly welcomed the expansion, concerns are mounting over whether the infrastructure and workforce are in place to deliver the increased demand, especially in light of rising costs.
According to the Coalition, which includes organisations such as Save the Children, the Federation of Small Businesses and Mumsnet, government funding rates have failed to keep pace with the rising costs of delivering childcare.
The rise in the National Living Wage and higher employer national insurance contributions, both introduced in the Spring Budget, are cited as key drivers of increased overheads.
Frontier Economics, which conducted a separate economic analysis for the Coalition, found that the additional costs are hitting providers in disadvantaged areas the hardest.
Sarah Ronan, director of the Early Education and Childcare Coalition, described the situation as “bleak”.
“We welcome the increase in minimum wage, which is desperately needed, but government funding is simply not enough to cover this and the rise in [national insurance contributions],” she said.
“In essence, childcare’s biggest customer is short-changing the sector, and it will be families that pay the price.”
With over a third of providers either limiting or considering limiting funded hours, the Coalition is urging the Government to increase support in the upcoming Spending Review.
Ronan warned that without immediate action, the new entitlements could collapse under the weight of insufficient funding, adding: “The Spending Review is the final opportunity for the government to guarantee the success of September’s roll out.”
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