Government has more work to do on landmark childcare reforms, Education Committee report says

The Education Committee welcomes the Government’s focus on childcare in the Spring Budget but warns it has more work to do and should consider wider policy changes to ensure children benefit from high-quality affordable childcare and to help parents and providers who are struggling. 

The findings come in a new report which concludes the cross-party Committee’s inquiry that was launched amidst warnings that state and private providers had been closing at an alarming rate. This has been coupled with a major recruitment and retention challenge and a decline in the number of childminders. 

This is despite strong demand for childcare from a generation of parents who are struggling to afford services, with many opting against returning to work or delaying having children.  

During the course of this inquiry the Government announced the largest expansion in public investment in childcare on record through an extension of its funded hours, however the overall system remains complex and the Committee has made a number of recommendations to increase choice, availability and flexibility for parents. 

Education Committee Chair Robin Walker MP said: 

“Nothing can be more important than the start we give children in life and early education should be at the forefront of education policy. The Chancellor’s major spending commitments to extend subsidised childcare were well intentioned and showed the Government recognises the huge benefits to the country of fixing this sector. High quality early education should be a win for children, parents and the education system. 

“We know that high-quality childcare can have a significant impact on young children’s development and can be an investment in their future. Our inquiry took a deep dive into how the sector could function better and how well it serves young children and parents. 

“The childcare market is facing significant challenges in affordability and availability, with unprecedented staff turnover and nurseries closing, despite massive demand from parents who want a career and to provide for their families but struggle to find affordable services. It is clear that ministers have more work to do to address this. 

“Simply extending the number of hours that the Government calls free will not work unless the funding rates accurately reflect the costs of providing high-quality early education and childcare. We have heard that many settings rely on charging more for the children who attend them outside of the funded hours. It is therefore essential that ministers reduce burdens on the sector and provide adequate funding for all the stages of early education.  

“We have recommended that the Government should remove business rates and VAT from nurseries and support an expansion in childminding capacity which provides much-needed flexibility. We also want to see better evidence on the case for younger children being in childcare and more support for parents who choose to stay at home to look after their children, providing stimulation and support at such a critical stage of development. Family Hubs will be an especially vital resource for disadvantaged families but currently cover a limited number of places, we recommend that they be rolled out nationwide. 

“There are holes that need fixing in the complex patchwork of benefits and schemes available to parents, and not reforming the onerous workings of the Tax-Free Childcare scheme was a missed opportunity. We are also concerned that parents who are studying and upskilling are not well enough supported, which runs contrary to the Government’s own agenda. 

“The overall system of supporting families and children with SEND, all the way through to adulthood, could be significantly helped by improving identification during the early years, which is why we argue for all childcare workers to receive mandatory training in this. 

“Staff are the lifeblood of this sector and the huge expansion of subsidised childcare will only be successful if we can stem the tide of people leaving the workforce. There needs to be a revamp of career development, with improvements to pay, progression and conditions so that the profession is given the respect and status it deserves. 

“Throughout this inquiry, and in the incredible response from families and providers, there was no shortage of people ready to point out flaws in the system. But there was a great deal of praise for the brilliant people who work with young children and strong evidence that with the right support they can do more. There were also an abundance of practical ideas to revive the childcare sector and update the offering to young families. We look forward to the Government’s response to our recommendations.” 

Below is a summary of the report’s main findings. 

Government should increase the childcare entitlement subsidy for providers 

A headline announcement in the Spring Budget was that, from September 2025, the entitlements to 30-hours “free childcare” would be extended over time to children from the age of nine months up to four years old. This represents a significant increase in the role of the state in a sector dominated by independent and voluntary providers.  

The Office for Budget Responsibility said expanding the funded hours will be a key driver in getting parents back into work, and was likely to have "by far the largest impact” on potential output in the Chancellor’s budget. The OBR also predicted that by 2027-28 the reforms could result in "around 60,000" people entering employment for at least 16 hours a week.  

However, the Committee heard significant concerns that childcare entitlements have been underfunded by the Government for years, and some witnesses feared that extending the ‘free hours’ entitlement without adequate funding would see more providers go bust due to the losses they make offering the entitlement places. The Government has announced £204 million to address the current funding deficit, but the Institute for Fiscal Studies said this fails to address previous years of underfunding. 

The report calls on the Department for Education (DfE) to “work closely and consistently with childcare providers and local authorities… to set the funding rate at a sufficient level.”  

DfE should stop describing the 30-hours offer as ‘free hours’ and instead refer to it as ‘funded' or 'subsidised' hours. Parents felt the ‘free’ label was misleading, as the hours were only offered in term time and providers often had to charge higher for additional hours or other consumables to make up the funding deficit. 

Simplifying the system to ensure more families benefit  

DfE should streamline the complex system of applying for the 30-hours entitlement. Parents have to apply for an ‘eligibility code’ 4-10 weeks before their child starts with a provider. Children can only join at the start of a new term and parents must ‘reconfirm’ their eligibility for the scheme every three months. Parents of summer born children currently risk losing out on funded places and the report recommends changes to ensure that every child who is eligible gets the hours to which they are entitled. 

A common hurdle for single parents who wish to earn more and provide for their children is needing new skills and qualifications to gain well-paid employment. But those parents are often priced out of childcare and can’t juggle being a parent, studying and working. In line with DfE’s policy on life-long learning, the Committee recommends extending the 30-hours childcare entitlement to parents who are studying or in training. 

Abolish business rates for nurseries 

The Committee recommends that all nurseries should be exempted from business rates and zero-rated for VAT in recognition of their role in delivering a key Government policy. 

Childcare settings tend to pay high business rates due to requiring large amounts of space under regulations in the Early Years Foundation Stage (EYFS) Statutory Framework there are widespread concerns that if they expand to meet the additional demand implied by the extension of funded hours, this will see rates rise even higher. Childcare settings of all kinds are exempt from charging VAT. However, private, voluntary and independent settings must pay VAT on business purchases and capital spending whereas local authority funded settings do not. 

Removing business rates and easing the VAT burden could help to address the significant financial problems facing the sector, with many settings noting that they would use the change to pay staff more. It would also support investment and remove barriers to expansion at a time when government is placing more demand on the sector. 

Simplify tax-free childcare offer 

The Committee calls for a “fundamental review” of the Tax-Free Childcare scheme, which was notably absent from the Spring Budget announcements. 

The scheme offers working families 20% off childcare costs, or up to £2,000 per child per year, but it is seen as complex and is underused. Its forecasted cost in 2019 was £865m, but only £236m was issued to families due to low take up. Even among those families who have registered for it a significant proportion never actually use it. 

The charity Coram called it "hard work" due to the three-monthly need to reconfirm, needing separate accounts for each child, and the low £500 per quarter top up.  

Staff:child ratios 

The Spring Budget also announced a contentious change to the minimum staff:child ratios for early years settings. For two-year-olds, the ratio will change from 1:4 to 1:5, with the Government goal being to improve flexibility and allow settings to save on staff costs. 

However, most contributors to the inquiry and the Government’s consultation were opposed to the change and argued this would lead to or be perceived by parents to lead to a reduction in quality. Speech and Language UK said the change would lead to “normalising an insufficient level of staff”. Amongst providers there was little evidence of a demand for this change and parents generally supported lower ratios.  

The Committee recommends this reform be closely monitored and reversed if quality and education outcomes suffer. 

Mandatory SEND training  

Witnesses spoke of the huge benefits to young children and parents if special educational needs or disabilities are spotted early and said a range of adults involved in a child’s care have a role to play in this. 

The Committee argues that more  staff involved in a child's care should receive mandatory training in identifying and managing types of SEND, as it is “clearly inadequate” that only Level 3 qualified (A Level or BTEC) staff currently get this training. MPs call on the Government to amend the Early Years Foundation Stage Statutory Framework to reflect this as soon as practical. 

Fund family hubs across the country 

There has been a decline in the number of children’s centres across the country in recent years. Children’s centres, such as Sure Start centres, provided wider support services for parents of young children. The closures also put additional demand on the early years sector. 

The Government’s Family Hubs programme is a promising solution but has been rolled out to only 75 local authorities, meaning provision is patchy. There are real opportunities for family hubs to support parents both with the home learning environment and signposting, and sharing the benefits of early education settings and the childcare offers. The report urges ministers to commit to long-term funding of Family Hubs and rolling them out nationally. 

Boosting staff career development 

Career development for early years practitioners should be an urgent priority for DfE to attract and retain more people in the profession. MPs are concerned about a lack of parity of esteem between early years settings and primary schools. 

The charity Coram's 2023 annual Childcare Survey heard from 71% of local authorities that local childcare providers are finding it “very difficult” to recruit staff with the required qualifications and experience.  

The Early Careers Framework – used to define training for new teachers – should be expanded to apply to all staff working in Ofsted-registered early years settings to improve retention and boost their career development. 

The Committee heard that early years qualification routes have limited appeal due to not carrying the enhanced pay, status and conditions of employment that other teaching qualifications do. This limits the attractiveness of the sector and leads to challenges in achieving quality leadership. To support providers to develop their staff, we have also recommended the introduction of a Leadership Quality Fund. 

Remove barriers for childminders operating from social housing   

Many would-be childminders are blocked from operating by social housing providers, including councils, due to rules that ban tenants from setting up businesses from their homes. Ofsted requires all childminders in rented properties to have written permission from their landlord before registering, meaning any landlord can effectively stand in their way. Whilst some social landlords choose to exclude childminders from their prohibitions there is a lack of consistency across the sector. 

DfE should work with the Department of Levelling up, Housing and Communities to remove these barriers. The Government should consider legislation if this can’t be achieved through a voluntary process. 

Data on the benefits of childcare 

The Committee is concerned that there is a lack of evidence on the effects of formal childcare on very young children. This is because data gathering has focused on children aged two and over who have been eligible for the childcare entitlements. It will be vital for the Government to ensure that this expansion in the entitlements is properly evidenced for these very young children and to ensure that the wider tax and benefits systems allow parents a genuine choice as to when their children will benefit from entering childcare.     

A long-term plan for childcare & the early years 

Government announcements in the Spring Budget indicated its willingness to better support this vital sector. To properly do so, these changes need to form part of a wider Early Years Strategy, encompassing supply side reforms, workforce development, and a considered focus on improving the quality of ECEC provision for children in all areas. Simply expanding the funded entitlements will not be enough. The reports recommends that the Government review and update its 2017 Early Years Strategy.