Increases in the cost of childcare

Posted on March 3, 2014 by - Protection, Retirement, Wealth Creation

Families are feeling the impact of benefit cuts
The cost of bringing up a child has reached £227,266, up from £222,458 last year, with the first year of a child’s life seeing the largest increase.

According to the annual ‘Cost of a Child’ report from protection specialist LV=, the cost of a child’s first year has risen by 50% (£11,025 up from £7,372) since the first report in 2003. In the past 12 months, it has increased by 5% and this is largely due to the cost of childcare for children aged less than a year (1) rising by 7% (£6,623 up from £6,191 in 2013). In total, parents now spend £66,113 on childcare – an increase of 4% overall.

Education and childcare remain the biggest costs, and 71% of parents report that they have been forced to make cuts to meet the financial demands of raising their family. The overall cost of raising a child has increased by 62% since 2003.

The cost of living
Parents have been hit hard by increases in the cost of living, as more of their income is spent on essential goods and services such as rent, household bills and food – items that have seen particularly rapid inflation over the past few years (2). The overall cost of goods and services purchased by parents has increased by 33.6% in 10 years, compared with 30.7% for the headline consumer price index, meaning that prices have been rising almost 10% faster for parents (3) than the general inflation rate. Single parent’s families have been hit even harder with the overall cost of goods increasing by 34.7% over the same period. This comes at a time when many benefits have been put on hold and wages have not kept up with inflation.
The increasing cost of raising a child means that parents are now estimated to be spending on average more than a quarter (4) (28%) of their annual income on bringing up their child each year – up from 23% in 2004. For single parent families, this figure rises to more than half (54%) (5) of their annual income.

Working more hours
Alongside the rising cost of raising a family, the changes to Child Benefit in January 2013—which saw many families lose some or all of their child benefit—have affected many households. One in four mums (27%) have returned to work earlier than they wanted to and close to one in five (19%) have had to work more hours than they intended to. Meanwhile, one in ten parents (11%) have now chosen to have a smaller family, and one in five (21%) are delaying having an additional child because they now can’t afford it.

However, with the cost of average childcare costing £405 (6) a month across Britain, mums now say they personally need to earn an average of over £26,000 a year to make it worthwhile returning to work.

Protecting the family finances
The need to make the family finances go further has taken its toll on the amount parents are likely to put aside for the future. One in three (34%) say they’ve had to reduce the amount they save, and one in 10 (10%) have had to cancel or review their insurance products and income protection cover to help with family budgeting. In fact, 41% of parents now have no life cover, critical illness or income protection cover at all.


Cost of a child calculations, from birth to 21 years, have been compiled by the Centre of Economic and Business Research (CEBR) for LV= in December 2013 and is based on the cost for the 21 year period to December 2013. Using data from the ONS’ Family Expenditure Survey, CEBR also were also able to compile a measure of inflation for families, in contrast with the overall CPI measure.

Additional research was conducted by Opinium Research from 13 to 16 December 2013. The total sample size was 2,001 UK adults and was conducted online. Results have been weighted to a nationally representative criteria.

1. CEBR’s model assumes that parents go back to work after 6 months (what’s known as “ordinary maternity leave”). It then tracks the cost of childcare for the remaining 6 months of the first year, using a combination of data from the Office for National Statistics and desk research from other sources. This cost has increased significantly over the past 12 months.
2. Calculated as December 2013 versus December 2003. Single parent households on average have significantly lower income than two parent households [£19,444 for the average single parent household, versus £38,762 for the overall UK average household and £52,140 for two parent households]. This means that a much greater share of expenditure is made on essential items such as rent, household utility bills, and food. It is these products that have seen particularly rapid inflation over the past few years [e.g. the December 2013 inflation figures showed a 3.7% annual increase in the cost of rent and utilities], whereas prices on more luxury items such as recreation & culture have seen smaller increases [the same figures showed just a 0.8% annual increase in the cost of recreation and culture]. As such, the total basket of goods and services purchased by these single parent households has seen faster price inflation than the basket of those bought by two parent families.

3. Family households spend a much greater share of expenditure on essential items such as rent, household utility bills, and food. It is these products that have seen particularly rapid inflation over the past few years.

4. According to CEBR, the cost of raising a child from birth to 21 now costs £227,266 or £10,822 per year. The average (mean) annual household gross income is £38,762. This equates to 28% of the average income spent per year on bringing up a child i.e. £227,266 divided by 21 = £10,822. 100 divided by £38,762 x £10,822 = 28%. In 2003 this was just 23% (in 2003 the cost of raising a child was £140,398 or £6,686 per year. The average mean annual household income was £29,406 so £140,398 divided by 21 = £6,686. 100 divided by £29,406 x £6,686 = 23%).

5. Due to the lower income of single parent families, the average annual cost of raising a child is equivalent to 54% of average gross annual income of £20,000.

6. According to DayCareTrust the average cost of childcare across Britain is £101.29 per week (for 25 hours) x 4 = £405.16. (Child Care Costs Survey 2013, page 4)