Squeezed families paying thousands of pounds for annual childcare fees are desperate for Chancellor Jeremy Hunt to ease the burden by overhauling England’s childcare system when he delivers his Budget on Wednesday.

The average annual cost of a full-time nursery place (at 50 hours per week) for a child under two in Great Britain is now almost £15,000 – yet almost all nurseries in England (98.4 per cent) say they are losing thousands of pounds due to a steep funding shortfall, according to figures published last week.

Average costs have risen by 5.9 per cent in the past year to £14,836, while the number of places available has dropped, a survey of local authorities in Britain conducted by children’s charity Coram shows.

Separate research from the National Day Nurseries Association (NDNA) estimates the funding shortfall for places for three- and four-year-olds comes to £2.31 per hour, up from £1.87 in 2021. For children receiving 30 hours of free care per week, it comes to a shortfall of £69 per week each, or £300 per month.

A failure to fund the true cost of these free hours has left almost all of England’s nurseries with a shortfall, Coram warned.

Who is eligible for 30 hours of free childcare?

Currently, parents and carers in England are eligible for 30 hours of free childcare per week for children aged three and four. The 30 hours can be spread across 38 weeks, during school term time. Those who use fewer than 30 hours per week may be able to spread their entitlement across 52 weeks.

Eligibility for the 30 hours depends on your employment status, your income and your partner’s income, your child’s age and circumstances and your immigration status if relevant.

Working parents are eligible if they earn more than the equivalent of 16 hours at the national living wage or minimum wage per week.

Applicants must have a National Insurance number and either British or Irish citizenship; settled or pre-settled status, or awaiting a decision on this; or permission to access public funds.

Parents in receipt of universal credit who pay for childcare while they work currently must pay for their childcare costs and will receive a portion of the money back via the benefit.

Pregnant then Screwed, a charity that campaigns against pregnancy and maternity discrimination, is calling “as an absolute minimum” for the Chancellor to plough more money into funding free childcare and to overhaul the system so that parents on universal credit no longer have to pay fees upfront.

The Chancellor is believed to be announcing such a measure on Wednesday, spelling an end to people on that benefit having to pay the money to providers before claiming a refund

Mr Hunt is also rumoured to be considering a proposal to extend free childcare to one- and two-year-olds in England – a move that parents, carers and guardians would welcome. But the reality will not match up to the headline announcement if the scheme is not “properly funded”, noted Lauren Fabianski, head of campaigns at Pregnant then Screwed.

“You have to sort out funding first, because [otherwise] the sector will collapse. That will push [providers] over the edge,” she warned.

Pointing to the “huge” recruitment and retention problem affecting childcare providers, Ms Fabianski said: “Nurseries are closing at a rate off knots. Places aren’t where people need them, it doesn’t help if your nearest provider is 20 miles away.”

Nurseries say they are struggling to attract and hang on to staff because they are unable to offer a competitive wage.

“They are not babysitting – it is early years education. But what they do isn’t valued,” argued Ms Fabianski.

Mr Hunt is planning to substantially increase subsidies for childcare providers to pay for free childcare, it is understood. The payments will rise by hundreds of millions of pounds overall, according to The Sunday Times.

He is also expected to announce a raise on the amount that parents on universal credit can claim for childcare, from £646 to £950 a month for one child, and from £1,108 to £1,630for two children. The figure has not changed since 2006, amounting to a large real-terms cut for parents.

Ratios – the maximum number of children allowed per staff member – are poised to change too, from four to five.

Many providers are strongly opposed to such a move saying it would potentially endanger children, lead to staff spending less time with each child and make it even harder to plug the gap in their workforce.

Laura Suter, head of personal finance at investment firm AJ Bell, predicted the issue of childcare would be one of the biggest talking points around Wednesday’s spring statement and said there was “no doubt” it would be a “key issue” in the run up to the next general election.

“Barely a day goes by without another headline about how the UK’s childcare system is the most unaffordable in the developed world, or how more women are dropping out of work because they can’t afford the spiralling costs,” Ms Suter said.

“The government has mooted extending the ‘free’ hours of childcare to one and two-year-olds, but this comes at a huge expected cost, with some estimates putting it at £10bn.

“The other issue is that the ‘free’ hours are anything but, with the government paying such a low fee to nurseries for these hours that parents have to foot the bill for top-ups and extras so nurseries can keep afloat.”

She added: “The no-cost option, which might look very attractive to the Government, is changing the ratios of adults to children at nurseries and childminders, allowing fewer staff to look after the same number of children.”

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Mr Hunt hinted at the policies he will unveil on Wednesday during an appearance on the political programme, Sunday with Laura Kuenssberg yesterday.

He promised to help drive down the cost of childcare in an effort to encourage parents struggling or unable to cope with fees back into the workforce.

Childcare costs are forcing some parents to turn down paid work, and the Government could make a “big difference” by supporting them, Mr Hunt told the BBC programme.

The planned support would be part of a package of measures to break down “barriers” to entering the workforce, he vowed.

The Department for Education said: “We recognise that families and early years providers across the country are facing financial pressures. That’s why we have spent more than £20bn over the past five years to support families with the cost of childcare, and have provided additional funding for local authorities to increase the hourly rates paid to providers.

“The number of available childcare places has remained broadly steady since 2015, while this Government has doubled the free childcare entitlement for working parents of three- and four-year-olds to 30 hours, and introduced 15 free hours a week for disadvantaged two-year-olds. On top of this, working parents on universal credit can claim back up to 85 per cent of their childcare costs.”

The Treasury declined to comment.

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