Closing the Gaps: Funding, Inclusion and Quality in Childcare

Childcare is a vital arm of the modern welfare state, providing infrastructure for parents to work and supporting children’s early development.

Yet, despite its essential role, childcare policy has been plagued by underfunding, an unstable workforce and inequalities in access. In 2024, the Government set themselves an ambitious Early Years target of 75% of children being ‘school ready’ by 2028. However, only 1% of headteachers in English state schools think they will meet this.¹  

To better understand the investment required to address these issues, we commissioned London Economics to undertake modelling, building on their previous work which identified a £388 million gap between the costs incurred by childcare providers and the funding rate received for the government-funded hours.  

Increasing pay and development within the childcare workforce 

Securing decent pay and providing development opportunities are essential to create a motivated and stable workforce, yet London Economics’ modelling revealed 16,000 childcare workers are paid below the existing National Living Wage. Bringing workers' pay up to legal levels and ensuring all staff are paid at least the Real Living Wage of £12.60 an hour would be a significant step towards halting high staff turn-over rates and securing the necessary 40,000 additional childcare staff needed to deliver the childcare expansion.² This would cost an additional £228 million per year. 

To address the question of quality and the rising SEND needs presenting in early years, costs associated with various professional development scenarios were modelled. Providing all staff who have up to (and including) Level 2 qualifications with the DfE’s child development training would cost £14.1 million. Meanwhile, ensuring all childcare staff have an introductory level of understanding of SEND would cost £43.7 million.  

Overview of associated costs for scenarios modelled on pay and development 

Expanding the working families offer to key excluded groups  

Childcare funding in England primarily supports families who meet minimum earning requirements. This leaves many families struggling to access support, with schools picking up the pieces. Just over 80% of primary school teachers in England think the lack of affordable childcare has a negative impact on children’s ‘school readiness’.³ While at Save the Children, we ultimately want a universal childcare guarantee, there are excluded groups who should be prioritised in any expansion. Two such groups are children of parents in education and training, and children in some single parent families.

Currently, while parents in receipt of Universal Credit are allowed to have their work search requirements switched off for career related training, they are unable to access the funded hours to support them to do this.    

Meanwhile, in coupled households, if one parent meets the earnings threshold and the other cannot due to their disability or role as a full-time carer, the family are eligible for the 30 hours of funded childcare. Single parents in a similar position are not.  

The table below shows the total number of families currently excluded, and the costs associated with expanding to these families based on a take up rate similar to the DfE’s modelling. 

*_{This cost is an over estimation due to double counting of some families who feature in more than one group.}   

Expanding the working families offer from 38 to 48 weeks  

The Working Families offer only covers 38 weeks a year, often leaving families struggling to cover the costs outside of term-time. Around 50% of group-based providers and 5% of school-based providers offer the funded hours outside of term time; equivalent to 22 hours a week in practice. Expanding the entitlement from 38 to 48 weeks could give families greater flexibility in how they use their hours alongside more consistent financial support throughout the year. 

Ending the funding shortfall to stabilise the sector  

The London Economics modelling revealed that of the previously identified £388 million shortfall in the funding rate paid to providers for the year 2024-2025, this disproportionally impacts school-based settings due to the high staff costs in school-based settings. Although Maintained Nursery Schools receive supplementary hourly funding, this is only paid to around 300 maintained settings, not the 11,000 school-based settings. 

Closing the Gaps: Funding, Inclusion, and Quality in Childcare 

High-quality, inclusive childcare is critical to reduce child poverty, increase parental employment rates and meet the Government's ambitious Early Years target. The scenarios outlined in the London Economics modelling identify measures which can help achieve this. The necessary reforms are not cheap, but inaction will be even more costly for children, parents and the wider economy in the long run: Government cannot delay any longer in investing in our children.  

Documents to download 

• London Economics Modelling: additional funding requirements to improve childcare in England, May 2025 
• London Economics Modelling: Calculating the shortfall in childcare funding in England 
• Save the Children Briefing on London Economics Modelling 

References:

[1] Teacher Tapp survey results from a survey of 2,544 teachers in English primary schools conducted in May, 2025

[2] https://assets.publishing.service.gov.uk/media/66221ba8252f0d71cf757d2b/Spring_budget_2023_childcare_expansion_costing_note_information.pdf

[3] Teacher Tapp survey results from a survey of 2,544 teachers in English primary schools conducted in May, 2025.

[4] Some of this cost would be offset by savings from other childcare schemes currently available to some parents in training and education.