Iain Watson,Political correspondentand
Chris Graham
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Education Secretary Bridget Phillipson is to ask the Competition and Markets Authority (CMA) to examine the hidden costs parents may be charged when using government-funded childcare.
Eligible working parents of children aged between nine months and four years old in England are entitled to 30 hours a week of government-funded childcare.
But ministers are concerned that families are still facing costs to secure places – through demands for non-refundable deposits.
In some cases parents who successfully secure a nursery place are expected to meet additional costs for meals, snacks, nappies and suncream.
They are concerned this may create a barrier for hard-pressed parents to get the childcare they need and will ask the CMA - which is tasked with promoting competition and protecting consumers - to investigate, the Financial Times first reported.
Ministers are concerned the offer of funded childcare for many working parents is being undermined.
Personal finance journalist Rick Kelsey told the BBC Radio 4's Today programme he, like many parents, had been "excited" last September for the start of government-funded childcare grants.
But he was left with additional charges of £16 a day for consumables including food and sunscreen.
"I don't know about you but I'd love to see a toddler eat £16 worth of chicken nuggets and Babybel in a day," he said.
There is a "game of smoke and mirrors that's being played at the moment", he said, adding that many parents "don't know what their bill will be at the end of the month".
However, he added despite the bill "being unrealistic", he was very much aware that nurseries too were "being stretched for funding".
Neil Leitch, chief executive of Early Years Alliance - a membership organisation for providers, told Today the extra costs were a "cross subsidy" as the sector had been "grossly underfunded" for years.
"If you're going to ask the CMA to look at anything why don't you ask them to look at if the sector is adequately funded," he said.
"If this was about integrity why has the government increased National Insurance contributions and did not fund that into the rate they pay providers? Any economist would tell you there's something fundamentally flawed," he added.
"The government knows we're short changed in all of this."
A CMA spokesperson said: "We welcome the request from the education secretary to carry out a review into the early years childcare sector.
"The CMA has been monitoring developments and exploring the merits of work in this area.
"This is an important sector that needs to work well for families, and we will be developing a specific proposal to put to our board."
The Conservative government initially introduced 30 hours of free childcare for most working parents of three and four-year-olds in England for 38 weeks a year and then expanded provision to younger children. The current Labour government went further and introduced free care to eligible parents for children from 9 months old until school age.
More than 1.7 million parents in England now use government-funded childcare hours, according to Department for Education (DfE) figures.
The average cost of full-time nursery - 50 hours a week - for a child under two in England including the funded hours is just under £149 per week in 2026, according to Coram and Family Childcare.
That is a 39% drop from last year, according to the charity's latest annual survey, which tracks the cost of childcare in England, Scotland and Wales.
The average cost for 50 hours a week for a child under two was £259.10 in Scotland and £325.12 in Wales.
After dismal results in local elections in England this month, the government is keen to demonstrate that it is taking practical steps to tackle the cost of living.
Among a flurry of government policy announcements aimed at easing cost of living pressures, Chancellor Rachel Reeves announced on Thursday that ticket prices for families at various attractions such as theme parks, zoos and museums would be cheaper during the summer holidays through a cut to VAT.
The chancellor also announced free bus journeys for under-16s in England in August and cuts to import taxes on some basic foods under a "Great British Summer Savings" campaign.
Clarification 29 May: This article was amended to include further details about the introduction of free childcare which were omitted from later versions of the story.
