Private nurseries that are part of a group make considerable cost savings, no matter the size of the group, according to research commissioned by the Department for Education.

The report, Impact of childcare provider characteristics on the cost of childcare for providers and parents, found that the costs associated with delivering an hour of childcare are on average a third lower for private providers who are part of a chain. Larger groups made more savings in administration and utility costs but otherwise the size of the group had no impact on the savings made.

However, for voluntary group-based providers, being part of a chain did not have an effect on costs.

The analysis also found that providers who delivered more hours of care achieved much bigger economies of scale. A 10% increase in the number of hours of care was associated with a 3% decrease in the cost of delivering care.

The research, based on an analysis of data from the 2022 Survey of Childcare and Early Years Providers, found private nurseries have the lowest costs but charge the highest hourly fees. Delivering an hour of childcare cost private nurseries £4.57 per hour, while the average cost across all providers, including childminders, nursery schools and nursery classes, was £5.21. The average fee charged by private nurseries was £6 an hour, compared to the average of £5.25.

The report found that only some of the savings achieved by providers were passed on to parents. In private nurseries, on average a 10% fall in costs was associated with a 0.4% decrease in fees, while in childminders the same fall in costs resulted in a 1.4% decrease.