Childcare costs are more than half the average wage in some parts of the country, new analysis from AJ Bell shows*.
The investment platform compared childcare costs with average wages across the country, with the figures showing the East and South-East are the worst for working parents.
In those regions working parents with a child in nursery or at a childminder could be paying 54p in every £1 earned, based on the median salary and typical childcare costs in their area. Even in the best region, the East Midlands, a parent on the average wage would be paying 47p in every £1 earned for childcare costs.
These figures also assume childcare costs for one child. If the costs were doubled to cover two pre-school children, many parents would be paying to go to work.
The findings come as the government prepares to roll-out increased childcare funding from April. Parents of two-year-olds will be able to access 15 ‘free’ hours from April, with the scheme eventually extended to 30 hours for parents of children from 9 months old by September 2025.
Laura Suter, director of personal finance at AJ Bell, comments:
“These figures reveal the financial challenge faced by many working parents, illustrating the huge percentage of wages that can be swallowed up by childcare fees. When you factor in taxes, and the cost of getting to work on top of this, it’s clear that for many people going back to work just isn’t financially viable. Faced with the prospect of losing more than half their pay to childcare many parents, predominantly women, don’t return to work.
“The figures also look at pay before any deductions, such as tax and National Insurance. For someone in the South East, where the gap between pay and childcare fees is tightest, while a typical wage is around £30,000, once tax, National Insurance and childcare costs are factored in take home pay is only around £9,000 a year. That’s before allowing for other things like student loans and pension contributions too. If we factor in 5% pension contributions and student loan repayments, actual take-home pay after childcare costs drops to £7,800 – or £650 a month**. Considering people need to afford rent, food, bills and other essentials on this money we can see how it’s not viable for many people to make ends meet.
“Once the free hours scheme is extended to 30 hours for children from 9 months old in September 2025, it will become more manageable for some parents to afford childcare once their parental leave ends. Although the reality of the free hours scheme is that it doesn’t do exactly what it says on the tin. The free hours only apply in term time and often don’t pay enough to cover the full hourly fee, meaning nurseries have to charge additional fees. And for parents with two or more children, the cost will often still be prohibitive.
“There is help with childcare fees, though that is chronically underclaimed. Tax-free childcare offers up to £2,000 a year per child off childcare costs for eligible parents, while the free hours scheme currently in place offers 30 hours for parents of three and four-year-olds. On top of that parents should ensure they are claiming any child benefit they are eligible for, with the criteria changing from next month to include more working parents.
“If you find yourself taking an extended career break to care for children at home then it’s important not to lose sight of the impact on your finances. You won’t be paying into your workplace pension during a career break, so you should consider whether you can pay into a personal pension or Lifetime ISA during your break. You could also miss out on crucial National Insurance contributions if you don’t claim child benefit, potentially reducing your future state pension entitlement.”
*Analysis based on Coram Childcare report and ONS figures. Childcare costs are weekly, based on 50 hours of childcare (i.e. full time Mon-Fri) for one child under two. Pay is based on median weekly pay before tax for 2023. Some working parents will benefit from the ability to reclaim some childcare costs if they receive Universal Credit, or will be eligible for tax-free childcare, allowing them to claim up to £2,000 a year toward the cost of childcare.
**South East example based on a full-time worker on a salary of £30,181pa. Take home pay calculated as their full salary, minus National Insurance, income tax, and the average cost of childcare for one child under two on a net basis assuming the family claim tax-free childcare in full. In the example with pension and student loan, figures are based on salary sacrifice pension at 5% plus a Plan 2 student loan repayment.
