Funded early learning and childcare in private, third sector and childminding settings: delivery costs

Cost of Delivery

This chapter presents the core financial findings of the study, including calculated and self-reported estimates of the hourly cost of delivering funded ELC. It compares costs across provider types, age groups and geography, and discusses the factors that influence variation in reported figures. The chapter also includes data on the surplus margins providers say they require to remain financially sustainable, and reflects on the extent to which current funding models align with actual delivery costs.

Overall cost per hour

This section presents the calculated costs per hour based on the returns of providers. This is calculated by taking the total expenditure reported by providers and dividing that by the total hours of delivery reported across all age groups in order to calculate the cost per hour. For most providers the largest activity was for 3-5 year olds.

Providers were able to report data either for the month of April 2025 or for a full financial year. The vast majority of the data reported relates to financial year 2024-2025 and therefore is as up to date as possible in most cases.

The mean cost per hour of delivering funded ELC across day care of children services is estimated at £6.42, with a median cost of £6.00. During discussions with providers over the course of this work many highlighted to the study team that they did not always differentiate costs across groups when thinking about their own costs but were able to highlight factors that made costs higher across certain age groups.

This relatively narrow gap between mean and median suggests a moderate level of consistency across providers though there remains significant variation at the margins.

These figures reflect core operational costs including staffing, premises, consumables, and administrative overheads. Importantly, many providers indicated that their reported costs are shaped by what they can afford to deliver under the current funding model, rather than what they would ideally spend to ensure high-quality provision.

The estimates are also influenced by methodological limitations:

• Providers submitted data based on different accounting periods, affecting comparability.
• Wage pressures, including recent increases and anticipated rises, are not fully reflected by some providers.
• A substantial proportion of providers declined to share detailed financial data, citing concerns about fairness and competition with local authorities.

These caveats suggest that the reported cost per hour may understate the true cost of sustainable, high-quality ELC provision.

Cost by provider type

The cost of delivering funded ELC varies across provider types, reflecting differences in scale, staffing models, premises arrangements, and financial resilience (see Figure 10).

The mean cost per hour calculated for private day care of children settings was £6.16, with a median of £6.00. These figures reflect relatively consistent cost structures across the private sector, shaped by staffing, premises, and operational scale.

Third sector settings reported a higher mean cost of £6.72 per hour, with a median of £6.03. This may reflect smaller scale operations and a commitment to inclusive provision, often delivered with limited financial reserves.

Childminders reported a mean cost of £6.39 per hour and a median of £5.89. While typically operating with lower overheads, many childminders indicated that delivering funded hours alone is not financially sustainable without additional private income.

Looking beyond the designations of provider types, we can also note variations in cost per hour across a number of different characteristics. Figure 11 below presents results based on the urban and rural status of all providers.

This demonstrates that the mean average cost per hour is higher in remote rural areas than either accessible rural or urban areas.

In addition to the above, we can also estimate that the cost per hour is higher among outdoor providers than the average with a mean cost per hour of £6.71 and a median cost per hour of £6.35.

Figure 12 below shows the splits of cost per hour by size of provider, demonstrating little variation on the cost per hour of delivering childcare.

Figure 13 below shows the splits of cost per hour by SIMD quintile based on the postcode provided with the submission.

Figure 14 below shows how the calculated cost per hour varies depending on the proportion of reported activity that is among 2-year-olds. For those where up to a quarter of their activity is for 2-year-olds the median value is £6.09, rising to £6.45 where more than half of activity is attributed to 2-year olds.

Self-reported cost per hours

In addition to calculating cost per hour from provider financial data, the research also captured self-reported estimates of the hourly cost of delivering funded ELC. These figures offer insight into how providers perceive their own cost structures, and how these perceptions vary by age group:

• For children aged 2 years old, the median self-reported cost per hour was £9.00, with a mean of £8.57.
• For children aged 3–5 years old, the median was £7.25, and the mean was £7.57.

These estimates are notably higher than the calculated costs per hour across all provider types, suggesting that many providers may view the true cost of delivery as exceeding what is currently captured or funded under the 1140 hours model.

Providers consistently reported that the cost of delivering ELC for 2-year-olds is higher than for 3–5-year-olds, primarily due to staffing ratios. Regulatory requirements are for a significantly higher staff-to-child ratio for younger children, which directly increases staffing, the largest single expenditure for most settings.

In addition to staffing, providers highlighted some other cost drivers for 2-year-olds:

• Consumables: Younger children typically require nappies, wipes, and more frequent cleaning, adding to operational costs.
• Space and layout constraints: Some settings noted that physical limitations prevent them from maximising staff efficiency, especially when caring for younger children.
• Specialist support: While 3–5-year-olds may have more identified Additional Support Needs (ASN), the intensity of care for 2-year-olds, including personal care and supervision, often requires additional staff beyond mandated ratios.

The divergence between self-reported and calculated hourly costs presents a key interpretive challenge. While calculated costs are derived from financial records and offer a standardised view of expenditure, self-reported estimates reflect provider perceptions, which may incorporate factors not easily captured in financial data, such as:

• Opportunity costs (e.g. unpaid labour, foregone income)
• Anticipated future costs (e.g. inflation, recruitment challenges)
• Quality aspirations (e.g. staffing above minimum ratios, enhanced learning environments)

This perception gap may be particularly pronounced in settings where providers feel the funding model does not reflect the true cost of high-quality provision.

This gap between calculated and self-reported costs reinforces concerns raised during qualitative engagement: that the current funding model may not fully reflect the actual cost of high-quality provision, particularly for younger age groups. It also highlights the importance of considering provider perceptions when reviewing funding adequacy and sustainability.

Surplus/Return on Investment Required for Sustainability

Day care of children providers were asked to estimate the average surplus required to remain financially sustainable (see Figure 16). The responses show a wide range of required surplus levels among day care of children providers:

• 21% of providers indicated a need for a surplus of 0–5%
• 19% required 6–10%
• 19% required 11–15%
• 17% required 16–20%
• Smaller proportions required higher margins, with 6% indicating a need for 30%+

This distribution suggests that while some providers can operate with minimal surplus, many require more substantial margins to remain viable. The current funding model may not adequately support these needs, particularly for providers with limited access to external funding such as grants for third sector providers or those facing rising wage and property costs.

The findings reinforce concerns raised during qualitative engagement: that the existing model may constrain quality and sustainability.

The responses to the question on the average level of net surplus/profit/return on investment required for sustainability reveal notable differences across sectors, geographies, and types of settings.

By sector, private providers report a higher need for financial return, with 29% indicating a required surplus of 11–15%, and a further 23% needing 16–20%. In contrast, third sector settings are more likely to operate with lower margins: 44% report needing just 0–5%, 24% report needing 6-10% and only 7% require 11–15%. This reflects differing financial models, with private settings more reliant on profit for viability, while third sector organisations may be more grant-funded or community-supported.

Geographically, rural settings show a broader spread, with 28% needing 6–10% and 25% needing 16–20%, suggesting higher operational costs or less predictable income. Urban and small town settings are more concentrated in the lower to mid-range, with 25% needing just 0–5% and 20% needing 11–15%.

Outdoor settings show a particularly interesting pattern: 41% report needing 6–10%, and 18% require 26–30%, suggesting that some higher costs, possibly due to infrastructure, staffing needs and higher insurance costs. Non-outdoor settings are more evenly distributed across the lower ranges.

Overall, the data suggests that sustainability thresholds vary significantly depending on organisational type and context, with private and rural settings generally requiring higher levels of surplus to remain viable.

Meal Costs

Providers were also asked to report the cost of meals provided to children. Meal costs averaged £2.99 for childminders and £3.76 for day care of children services.

These costs typically cover lunch or a hot meal and may vary depending on whether meals are prepared on-site or sourced externally. Providers noted that meal costs are influenced by food prices, dietary requirements, and the need to meet nutritional standards.

Figure 17 below shows the variability in costs on meals and highlights that most providers reported costs in line with the average reported. The chart shows that 53% report being in the range of £2.84-£4.68 for meal costs and 26% report costs in excess of £4.68.

Figure 18 below presents the cost per meal across day care of children and childminding settings and also a split between urban and rural settings.

Figure 19 below presents the median prices of the cost per meal by how meals are prepared in settings.

Several providers raised concerns about the adequacy of current funding to cover

meal costs, particularly in light of rising food prices and the requirements of nutritional guidance such as Setting the Table: Nutritional Standards and Practical Guidance for Early Learning and Childcare (ELC) providers in Scotland.

While the reported mean cost of meals was £3.63 and the median £3.50, many noted that these figures do not fully capture the complexity of meal provision, especially where meals must be tailored to dietary needs or include multiple instances of provision across the day.

Some providers reported that the funded meal allowance only covers one meal, leaving them to absorb the cost of snacks and breakfast. Others described having to reduce the quality or variety of meals offered due to budget constraints, despite their commitment to providing nutritious food:

“Food costs have risen substantially… there is more food wastage as children won’t all eat what is offered.”

“The meal rate is only for lunch and does not include breakfast or snack allowance.”

“We are expected to meet nutritional standards, but the funding doesn’t reflect the actual cost of doing so.”

In a small number of cases, providers noted that they had surveyed parents to gauge willingness to pay more for meals, but felt constrained by the requirement that funded hours should be free at the point of use. This tension between policy expectations and financial realities was seen as a growing challenge, particularly for smaller or rural settings with limited economies of scale.

Pricing Structures and Strategic Considerations

The pricing structures reported by providers reflect a careful balancing act between cost recovery and market positioning. While fees for non-funded hours are a critical source of income, many providers emphasised that they are constrained in their ability to raise prices due to affordability concerns and competition from publicly funded provision.

Provider feedback highlighted a tension between the need to maintain financial viability and the desire to offer accessible, high-quality care. Some providers described making strategic decisions to keep fees low in order to attract and retain families, even when this meant operating with minimal surplus. Others noted that they had recently increased fees in response to rising costs, but were concerned about the impact this could have on uptake.

Overall, the data and feedback suggest that pricing decisions are shaped by a complex mix of financial, operational, and relational factors. Providers are navigating a landscape where funding rates, parental expectations, and cost pressures intersect, and where small changes in any one area can have significant implications for sustainability.