• Expanded, state-subsidised childcare has gained cross-party support in this year’s manifestos. These shared commitments will go some way to addressing the UK's historically low levels of childcare spending compared to OECD peers.

• But real challenges lie ahead in implementation. Original modelling by CPP shows that demand for childcare will rise by 52% by late 2025, requiring 27,800 additional full-time early years professionals—a tough feat given the sector's recent contraction.

• Nor is the recruitment challenge equal in all places. Poorer urban areas across England - the cities of the Midlands, Hull, and outer London’s poorer boroughs – face the biggest challenges, and will have to expand their childcare workforce by over 20% in little more than a year.

• The next Government can rise to the challenge, by drawing on best practice from the likes of Liverpool City Region and adopting policies targeting recruitment and retention.

Our research at CPP has long argued that childcare should be at the heart of an inclusive economy. It gives children safe, enriching learning environments, setting them up for success; helps parents back to work or study, supporting their financial stability; and ensures businesses have a reliable workforce and customer base.

CPP estimates that the lack of affordable childcare costs our economy £27bn to £34bn annually, or about 1% of GDP, due to reduced female labour force participation.

The UK’s childcare costs are amongst the highest across developed countries, and we have nearly the lowest level of public spending on childcare across OECD (at 0.5% of GDP, against 1.7% in highest spending Sweden and Iceland).

And childcare is now a key electoral issue. Over one in ten swing voters rate childcare as a top-three issue. So it’s no surprise that one of the Conservatives' flagship manifesto policies is the expansion free childcare. Parents will be able to claim 30 hours of government-funded childcare a week, over 38 weeks of the year, all the way through from nine months up to their child starting school.

Labour has committed to taking this same plan forward, rolling out funding over the next year. But they’ve gone further, announcing a plan to open 3,300 new nurseries in primary school classrooms and add around 100,000 nursery spots.

Labour’s ambitions show a welcome recognition that simply subsidising childcare won’t be enough to solve the Great British childcare crisis. The next government will need a more ambitious plan that tackles bottlenecks in physical sites and the workforce. Are we doing enough, and are we heading in the right direction?

Rishi Sunak has been forced to admit that there have been substantial “practical issues” since the expansion of childcare kicked off in April 2024. Why aren't things going according to plan?

The UK's childcare system creates significant challenges for providers as well as parents. They are facing high costs and low margins, leading to substantial market exit. 10,600 childcare providers closed their doors between 2019 and 2023—a 14% decline. Stagnant real-term fundings rates mean that a typical childcare provider is already losing more than £32,000 a year just for their 15-hour funded places for three and four-year-olds.

Department for Education statistics show a small rise in the number of early years professionals over the last year, but with rising staff turnover – especially for those who are most qualified. This has left the sector increasingly dependent on apprentices.

The National Day Nurseries Association's 2024 State of the Sector survey painted a grim picture of the current childcare supply landscape. 54% of surveyed nurseries in England said they were either unlikely to offer additional places to two-year-olds or were uncertain if they can. 56% admitted they could not meet the local demand for places. The expansion of subsidies for childcare will make this provision gap even worse, in an already strained sector.

To get a grip on the scale of the challenge, CPP has conducted an original analysis (full methodology available below) which shows that the planned rollout of childcare cost subsidies will lead to a 52% increase in demand for childcare for under-2s by late 2025 – equivalent to 27,800 additional full time staff.

When we map this across the country, we find that local authorities will need to boost their workforce supply by an average of 14.5%, with some areas requiring more than 20% expansion of their workforce. The places that face the biggest challenge will be poorer urban areas – places like the cities of the Midlands, Hull, or outer London’s poorer boroughs.

How can places drive change at the scale and pace required? We can learn from innovation already taking place across the country.

Through our Inclusive Growth Network, CPP has been working with Liverpool City Region (LCR) to develop a place-based, data-driven approach to delivering childcare in the region.

Combined Authorities do not have a statutory responsibility for early years or childcare delivery, but – given LCR’s role in driving growth and equity across the region - they have harnessed their skills and employability functions to support recruitment, retention and professional development in the early years education workforce.

As well as using the skills funding to drive change and enable more apprenticeships, LCR is using its convening role in the region to bring together local authorities, childcare providers, national government bodies, and even local football clubs to drive improvements. Noteworthy initiatives include using local champions to increase male participation in childcare and partnering with the Department for Work and Pensions to equip job coaches with the tools to guide job seekers into the sector.

A cornerstone of LCR's strategy is proactive data-gathering. LCR use a talent template – issued through Jobcentre Plus network – to identify thousands of residents interested in making a move to the childcare sector.

Effective collaboration, use of data, and reallocation of skills funding – brought together by Liverpool City Region – offers a template for other regions.

Raising demand without tackling challenges in supply means that the government risks having to spend significantly more than anticipated to meet its ambitions. The CBI estimates that – under the current business model - the government’s expanded childcare plans will cost £8.9bn (more than twice the £4bn currently allocated). But we can meet the target in a way that works for children and saves the taxpayer, if we can make the national effort.

We recommend:

1. Emergency top-up funding for the most affected communities: at a time of crisis in local government finances, central government should release dedicated funding to local and Combined Authorities in the places we have identified as most under-pressure to address workforce shortages.
   
2. Setting up 'Skills for Childcare': an independent body partnering with the childcare sector, local authorities, and the Department for Education to provide practical support for recruitment, development, and leadership in the sector. As suggested by IPPR, we also support implementing national pay scales (similar to those in the teaching profession) to elevate the status and esteem of early years education, ensuring parity and encouraging more professionals to enter and stay in the field.
   
3. Locally-led cost audits to drive up standards: Audits of childcare costs should be funded and regularised, to ensure government pays a fair price and takes on bad business models in the childcare sector. This could involve an annual audit by local authorities, in consultation with providers, to determine a more accurate cost of hourly care for subsidised places.
   
4. Treating childcare as an investment in human capital, rather than a cost: CPP has long argued that spending on childcare is akin to investing in physical infrastructure, driving output and productivity gains in the short, medium, and long term. This recognition is beginning at the local level, with childcare facilities now classified as infrastructure, funded through the infrastructure levy as part of the Levelling Up and Regeneration Bill. This should mark the start of viewing childcare and early years education as economically important as roads or railways, warranting inclusion in national public spending frameworks so governments can borrow to invest.
   
5. Using efficiency gains to make free childcare independent of employment status: Our system focuses on childcare for working parents, leaving children from the poorest households without early years education (which we know is critical for development); and making it harder for their parents to break out of unemployment – a double whammy for perpetuating cycles of disadvantage.

These challenges aren't insurmountable. With time, government funding, and careful planning, the rewards could be impressive. We can build a broad-based, accessible, and affordable childcare system in the UK, giving a massive boost to labour supply, earnings, and overall output.

After a decade of economic stagnation, this is exactly what the UK needs to help turn things around. The stakes are high, but the potential payoff is even higher.