Hidden childcare charges are being investigated by the government, as the Education Secretary, Bridget Phillipson, has ordered a competition review into practices that leave parents footing unexpected bills despite the flagship expansion of funded hours.
Phillipson has written to the Competition and Markets Authority (CMA) asking the watchdog to examine a range of common but controversial charges, including non-refundable deposits, compulsory add-ons and restrictions attached to government-funded nursery places. The CMA will also assess the role of ownership models — particularly private equity — and whether they are driving up costs or creating risks for families reliant on local provision.
Ministers have said too many parents are still being asked to pay extra to secure a nursery place, including upfront deposits, additional paid hours and charges for basics such as nappies, meals and suncream. The review comes as the government tries to ease pressure on household budgets amid the continuing impact of the Iran war on global prices, with ministers concerned that families may not be feeling the full benefit of support packages.
What parents are actually paying
Polling commissioned by the Department for Education from Ipsos found that nearly three-quarters of parents (72%) with children in formal childcare reported paying for extras such as meals, snacks, nappies, suncream and activities. While over half of those found these additional charges easy to manage, a fifth said they were difficult to pay. The same polling revealed that almost three-quarters of parents had dipped into their savings to cover additional childcare costs, and more than a quarter (27%) said affordability remained the biggest barrier to accessing the childcare they needed — a problem that is actually more pronounced in less deprived areas.
A deeper issue is the existence of so-called “childcare deserts” — areas with a severe lack of provision. Research indicates that 45% of centre-based childcare and nurseries in England fall into this category, and these deserts are more common in disadvantaged areas where private-equity-backed providers are less likely to operate, potentially widening inequalities. The private equity footprint in the sector is already substantial: reports suggest nine of the ten largest childcare providers are backed by private equity. While these firms argue they professionalise services, critics worry that profit maximisation does not always benefit families or staff, particularly in poorer areas.
The government says eligible families are now saving an average of £8,000 per child a year through funded childcare hours, with more than 500,000 families benefiting. The expansion, first announced under Rishi Sunak’s government and continued by Labour, now entitles eligible working parents to 30 hours of funded care per week from the moment a child turns nine months old until they start school. From September 2025, that entitlement will apply to all eligible working parents in England. The policy costs around £9 billion a year, and spending on childcare entitlements is expected to rise from roughly £4 billion in 2023/24 to over £8 billion by 2027/28. The Department for Education estimates that 70,000 new childcare places and 35,000 additional staff will be needed by autumn 2025 to meet demand, with the government committed to opening 3,000 new school-based nurseries.
However, experts point out that chronic underfunding by the state is a root cause of many of the hidden charges. Funded hours rarely cover the actual cost of delivery, forcing nurseries to operate at a loss. That has led to fee inflation and strain on household budgets. The number of registered childcare providers in England has declined, with a notable fall in not-for-profit nurseries. The CMA has previously investigated the early years sector during lockdown over cancellation rights and charging practices, ruling that contracts must be fair and reasonable and that providers should not charge for services they cannot deliver.
Phillipson said: “I grew up in a family that knew what it meant to count every penny. I am so proud of the crucial difference that 30-hours funded childcare makes to family finances, saving £8,000 a year per child on average. The vast majority of nurseries and childminders have been brilliant in helping us deliver, but I will not accept the small minority letting families down and stopping them get what they were promised.”
Wider cost-of-living measures
Alongside the childcare review, the government has announced a package of measures aimed at helping households. On Thursday, the Chancellor, Rachel Reeves, unveiled a “Great Summer Savings” scheme costing an estimated £300 million. It includes free bus travel for children in August, the removal of tariffs on staples such as biscuits, chocolates and dried fruits, and a temporary reduction in VAT on attractions and children’s meals. The government also extended the temporary 5p cut to fuel duty.
Think tanks including the Resolution Foundation have suggested that richer households will enjoy a larger share of the benefits than poorer ones. The economic backdrop remains difficult: inflation in the UK cooled to 2.8% in April 2026, down from 3.3% in March, partly due to government measures, but it is expected to rise again later in the year. Motor fuel prices rose by 23% annually in April 2026, and retail sales fell by 1.3% that month — the sharpest drop since May 2025 — as consumers cut back on spending.
Ministers are also launching a new online cost-of-living tool to help parents understand what childcare support they are entitled to and how to estimate costs and find local providers. A childcare map is being piloted in north-east Somerset, Bath, Bristol and South Gloucestershire before a wider national rollout later this year. Separately, the Tax-Free Childcare scheme remains in place, under which the government adds £2 for every £8 paid into an account, up to £2,000 per child per year, for working parents earning at least £183.34 a week and no more than £100,000 annually.
The CMA’s investigation will also examine wider market pressures such as accessibility in “cold spot” areas, cross-subsidy models used by providers, and how transparent information is for parents trying to navigate the system. The watchdog has already looked at the children’s social care market, identifying problems with availability and rising costs, and has noted that the role of private sector providers has led to children being placed far from home and separated from siblings.
