This week, Education Secretary Bridget Phillipson announced she will ask the Competition and Markets Authority (CMA) to investigate the so-called "hidden costs" that childcare providers charge parents on top of government-funded hours. Meals, snacks, nappies, suncream, consumables, trips. The framing is that nurseries are sneaking these charges past parents and that something untoward is going on.
We want to offer a different perspective — one we don't often hear in the national conversation, and one that we think deserves a seat at the table.
These costs are not hidden. They are itemised, declared in writing, and explained at sign-up by every reputable setting in the country. What they actually are is unfunded — the inevitable, arithmetic consequence of a government that buys around 80% of all childcare places in England while paying a rate that doesn't cover the cost of delivering them.
If the Department for Education genuinely wants to bring childcare costs down for families, the CMA is looking in the wrong direction. The answers lie inside the department's own building, not inside a nursery's accounts ledger.
The arithmetic of "free"
Let's start with the maths, because the maths is where this conversation should always begin.
Nurseries are not charities. They pay rent, mortgages, utilities, food, insurance, training, pension contributions, software, equipment, business rates, and — overwhelmingly — wages. Staffing typically makes up 70-80% of a setting's costs. When the National Living Wage rises by around 7%, when employer National Insurance Contributions rise, when food and energy inflation push every line on the P&L upward, the cost of delivering an hour of childcare goes up.
The government's funding rate does not.
According to the National Day Nurseries Association's 2025 survey work, nursery staffing costs are rising by an average of 15% while government funding rates rose by around 4%. Operating costs for the average nursery were projected to rise by approximately £47,000 in a single year once minimum wage and NIC changes were factored in — and crucially, the NIC increase was not built into the funding rates the government pays providers. That gap doesn't vanish because the Treasury wishes it would. It has to land somewhere. It lands on the parts of a child's day that the government has decided don't count as "education" — the lunch, the nappy, the sun cream, the trip to the farm.
That isn't a hidden cost. That's the cost of running a nursery in 2026, displayed in plain sight on an invoice because providers have no other choice.
Look inward, not outward
The instinct to point the CMA at nurseries is, with respect, the wrong instinct. It treats a sector that the OECD repeatedly identifies as foundational to social mobility, female workforce participation, child development, and long-term economic productivity as if it were a price-gouging cartel rather than a network of mostly small, mostly local, mostly loss-making businesses doing extraordinary work on impossibly tight margins.
There is a lot the government could do that would make a meaningful, measurable difference — without commissioning a single regulator. Here are five things worth raising.
1. Business rates: the cross-border anomaly nobody talks about
Nurseries in Scotland have been exempt from business rates since April 2018. Nurseries in Wales have been exempt since April 2019. Both devolved governments decided, quite reasonably, that taxing early years settings on the size of the rooms in which children grow, learn and play was incoherent with also relying on those settings to deliver national childcare entitlements.
In England, no such exemption exists. The average English nursery now pays around £21,000 a year in business rates, and following the 2023 revaluation many saw their rateable values jump by 40% or more. That is roughly the salary of an entire junior practitioner — gone, before a single child has walked through the door.
If the goal is genuinely to make childcare more affordable for parents, removing this tax — as Scotland and Wales have done — is one of the most direct, evidence-based levers available. It is also entirely within Westminster's gift.
2. National Insurance: the recruitment crisis the Budget created
The April 2025 increase to employer National Insurance Contributions landed on the early years sector with particular force. Why? Because in a sector that is 70-80% staffing costs, any tax on employment is effectively a tax on the core business activity. And because the Department for Education declined to factor NIC changes into the funded hour rate, every penny of that increase had to be absorbed by providers or passed on to parents.
A bolder, more imaginative government would look at this problem from the other end. If the early years sector is struggling to recruit — and it is, with vacancy rates persistently elevated — why not consider a targeted policy that makes working in nurseries genuinely attractive to young people? A zero income tax band for under-30s working in qualifying early years roles, for example, would do more to address the workforce crisis than another funding review. It would draw new talent into the sector, support a young workforce typically earning at or near minimum wage, and signal that early years careers are a national priority rather than an afterthought.
We're not pretending this would be costless. But the cost of not fixing the workforce crisis — measured in closures, in places lost, in parents pushed out of work — is already running far higher.
3. The funding cliff for autumn-born children
Here is a quirk of the system most parents only discover when it affects them.
Government-funded hours in England begin the term after a child turns nine months old (or three years old, depending on the entitlement). Scotland operates a similar three-term model with eligibility starting from the term after the child's third birthday. In both systems, the term boundaries are roughly: places starting in January, April/May, and August/September.
The consequence: a child born in early September can wait until the following January to access their funded hours. That's roughly a full term — around 12-13 weeks — of full-fee childcare that a March-born child in the same year group would never have to pay for. For a family using full-time provision, the gap can run to thousands of pounds, decided entirely by which month the baby happened to arrive.
This is a policy choice. Other countries don't run their entitlements this way. If the DfE is interested in genuinely reducing parental costs, smoothing this cliff — even partially — would be more impactful than any number of CMA referrals.
4. Tax-Free Childcare: frozen since 2017
The Tax-Free Childcare scheme was introduced in 2017 with a cap of £2,000 per child per year (the government adds £2 for every £8 a parent puts in, up to a £10,000 spend). That cap has not moved. Not once. Not for inflation, not for nursery fee inflation, not for the cost-of-living crisis, not in eight years.
Eight years of cumulative inflation has eroded the real-terms value of that £2,000 significantly. Childcare fees have risen far faster than headline CPI over the same period. The scheme that was designed to take a meaningful chunk out of a working parent's bill now takes a much smaller one — through pure government inaction.
If hidden costs are the concern, here is a very visible one: the slow, silent shrinkage of the support parents were promised in 2017.
5. The £100,000 threshold: a household policy treated as an individual one
Tax-Free Childcare and the 30-hour funded entitlement both fall away entirely when one parent's adjusted net income exceeds £100,000. Note the words "one parent". A household where both parents earn £99,000 — total household income £198,000 — keeps every penny of support. A household where one parent earns £101,000 and the other earns nothing — total household income £101,000 — loses all of it.
This is one of the more incoherent cliff edges in British tax policy. It punishes single-earner households relative to dual-earner ones, creates a marginal tax trap that distorts career decisions, and has been left frozen since the scheme's inception — meaning that wage growth alone has steadily pulled more middle-income families into the trap.
Combining the threshold at household level — or simply uprating the individual threshold in line with inflation — is, again, a Treasury decision, not a nursery decision.
The story the sector deserves
None of this is to say that transparency for parents doesn't matter. It absolutely does. Itemised invoices, clear written agreements, and honest conversations about what is funded and what isn't are the bedrock of a healthy provider-parent relationship, and most settings already work hard to get that right.
But there is a difference between a regulator policing transparency and a government using a regulator to deflect attention from its own funding choices. The early years sector employs hundreds of thousands of people. It enables the workforce participation of millions of parents. It delivers the most cognitively significant years of a child's education. And it does this, in England, while being chronically underfunded, unfairly taxed compared to its devolved peers, and asked to absorb each new statutory cost increase without compensating adjustments to the rates it is paid.
We would welcome a serious, honest, evidence-led conversation about how to make childcare work better for families. We do not believe a CMA investigation into nappy charges is that conversation.
Look inward, Secretary of State. The levers that would actually move the dial are in your department, the Treasury, and HMRC. The sector you're investigating is not the problem. It is, in fact, one of the most undervalued solutions this country has.
Nuuri supports the early years sector and the families it serves. If you work in early years and want to share your perspective, or for press enquiries get in touch.