Nurseries struggling to break even despite childcare fees increase

New research by Money.co.uk has found that childcare providers are struggling to break even despite childcare fees increasing.

Analysis of 2025 Department for Education data reveals that the average private nursery in England makes just £933.66 profit per child each year — around £78 per month — after operating costs. Far from profiteering, many providers are operating on the thinnest of margins, needing to fill at least 31 places (60% of their registered capacity) before they cover their costs.

The research also found that government funding for three- and four-year-olds is £2.25 per hour lower than the average cost of delivering that care. For a child taking their full 30-hour weekly entitlement, that gap adds up to a potential shortfall of £2,565 per funded child each year — a deficit that providers must absorb or offset elsewhere.

The single biggest pressure on nursery finances is staffing, which accounts for around three-quarters (74–75%) of total operating costs. That figure is not a choice — it reflects the strict government-mandated staff-to-child ratios providers must maintain by law, regardless of rising employment costs.

Rent or mortgage payments account for a further 9% of operating costs, followed by food (4%), materials (3%), business rates (2%) and energy bills (2%). Together, these fixed and semi-fixed costs leave providers with almost no buffer when occupancy dips, or unexpected expenses arise.

On average, nurseries receive £6.42 per hour through the government’s funded hours scheme for three and four-year-olds — £2.25 less than the average cost of delivering that place. The gap is widest in London, where it exceeds £2 per hour, but no region in England is fully covered. Government funding falls below average provider rates for three and four-year-olds in every part of the country.

Matt Browning, Business Loans Expert from Money.co.uk, said, “Nurseries play a vital role in supporting families and enabling parents to work, but they are also businesses facing many of the same financial pressures as companies across the wider economy.

“Our analysis shows that providers need to maintain high occupancy levels simply to cover their day-to-day operating costs. As staffing accounts for around three quarters of expenditure, and government funding often falls short of the true cost of delivering childcare, there is very little room for unexpected costs or periods of lower occupancy.

“Many providers face a difficult balancing act — investing in facilities, maintaining quality, and managing rising costs while ensuring childcare remains affordable. Access to flexible finance such as a business loan can help businesses spread the cost of improvements, purchase equipment or create additional childcare places without placing unnecessary strain on cash flow.”