Ministers should remove business rates and VAT from nurseries so that they are able to pay their staff more, a group of MPs have recommended.

In the spring budget, Jeremy Hunt pledged to reform the childcare system, including by offering parents of children aged nine months to three years 30 hours a week of free childcare in term-time, which was expected to cost £4bn. The government claimed that it would reduce childcare costs for a family by almost 60%.

Although the education select committee has welcomed these new childcare provisions, it has also called on the government to go further in making childcare more affordable.

One recommendation is that nurseries in England should be exempted from business rates and VAT “in recognition of their role in delivering a key government policy”. The committee says removing these rates could lead to nursery staff being paid more.

The report also says the government has much more work to do to address the “structural problems” within early years childcare, and that plans to expand the number of subsidised childcare places in England “should not come at the expense of quality”.

The report calls on the government to stop referring to its flagship childcare policy as being 30 hours of “free” childcare and rather refer to it as “funded” or “subsidised” childcare hours.

Robin Walker, the committee chair, said: “Nothing can be more important than the start we give children in life and early education should be at the forefront of education policy. The chancellor’s major spending commitments to extend subsidised childcare were well intentioned and showed the government recognises the huge benefits to the country of fixing this sector. High-quality early education should be a win for children, parents and the education system.

“Throughout this inquiry, and in the incredible response from families and providers, there was no shortage of people ready to point out flaws in the system. But there was a great deal of praise for the brilliant people who work with young children and strong evidence that with the right support they can do more. There were also an abundance of practical ideas to revive the childcare sector and update the offering to young families. We look forward to the government’s response to our recommendations.”

A government spokesperson said: “To make sure that we are supporting our fantastic early years workforce, we will be investing hundreds of millions of pounds each year to increase the amounts we pay childcare providers. We also are consulting on how we distribute funding to make sure it is fair.”