The UK childcare system is on the brink and providers, parents and carers are feeling the strain even more. NMT explores the latest updates from the Department for Education

Earlier this year, chancellor, Jeremy Hunt announced the expansion of ‘free childcare’ across England that aimed to support families cover increasing costs and get more people back into work. According to charity, Coram Family and Childcare, the average annual cost of a full-time nursery place for a child aged under two in the UK is now £14,836 and while average costs have risen by 5.9% in the past year, availability of places has dropped.

Hunt said the government would provide 30 hours of free childcare a week to eligible working parents of children aged under five by 2025. The three-stage staggered approach is supposed to give providers more time to prepare for the changes. However, as we know, there was very little provider support announced and the government itself has a mess to clean up as local authority underspends increase.

Funding mismanagement

According to an investigation by National Day Nurseries Association (NDNA), local authorities are continuing to use millions of early years funding to offset other deficits or put in reserves.

A Freedom of Information (FOI) request to all local education authorities (LEAs) in England asked whether they had overspent or underspent their early years funding allocation for places in 2021/22.

Overall, NDNA discovered that £46 million of early entitlement funding was unspent by 92 councils, with 37% using this money (£15 million) to offset deficits within their Designated Schools Grant.
The investigation also found that:

• 149 out of 150 LEAs responded to the FOI request – Hartlepool did not respond
• A third of LEAs put their unspent funding (£15 million) into their reserves
• Only 11 councils gave any of this money back to providers in the form of a funding rate boost or one-off grant. A further 16 had not decided or did not say how they would spend £7.6 million
• 43 LEAs have ended up with a surplus four years in a row. Only six of these gave any of this money back to nurseries
• 15 local authorities underspent by £1 million or more; Islington has consistently reported an underspend of more than £1 million for the past four years
• A total of £229 million was not spent on early years places during the financial years from 2018 to 2022.

Purnima Tanuku, chief executive of NDNA, said: “This is our fourth year investigating underspends in early years funding and once again, the results are shocking.

“Lessons still aren’t being learnt, with too much of the funding meant for early education and childcare places being used to offset other deficits or put into reserves. Almost half of those who reported an underspend have done so since we started looking into this four years ago.

“The same thing keeps happening year-on-year. Of the 15 councils who had more than £1 million underspends this year, four of them have been in this position for three of the last four years.

“We are also concerned at the number of local authorities who are overspending, particularly those with huge overspends. Providers are now being penalised as councils have no choice but to recoup their losses from future funding. Three-quarters of councils with overspends had a low funding rate, which could help to explain how they ended up in this position.”

Especially with the Budget announcement, the government has been shouting loudly about the increase in funding they are injecting into the sector. Yet, as the investigation showed, much of the money is not reaching providers.

Early years funding: Trickle down effect

The financial disorganisation we are seeing across local and national government is actively contributing to the pressure on the early years workforce.

The DfE’s ‘Pulse survey of childcare and early years providers’ published in May revealed the enormous stain that the cost of living crisis is having on the sector. The survey was conducted with 1,857 participant’s including group-based providers (GBPs), childminders (CM) and schools-based providers (SBPs).

It found that 47% of settings (58% GBPs versus 39% CMs) reported that their income was insufficient to cover their costs, up from 35% in winter 2021. A further 37% of group settings had used their business contingency reserves to manage the increasing costs.

And of course, this trickled down and affected recruitment with 49% of group providers reporting having one or more vacancies, and 68% experiencing staffing issues in the past year. Of those settings which had staff leave, 65% said that “better pay” was a reason.

Neil Leitch, chief executive of the Early Years Alliance, said: “This report shows just how risky the government plans to expand the so-called ‘free childcare’ offers are.

“When nearly half of providers say their income is not covering costs, one in ten say imminent closure is likely and the vast majority are reporting staffing challenges, then it’s clear that the existing system simply isn’t working.

“Worse still, as the report highlights, despite providers’ very best efforts, continued cost pressures and an urgent need to reduce costs are now starting to impact the quality of education and care they are able to offer.

“While it’s true that providers have been hit hard by the cost of living crisis, there’s no doubt that it is the years of government inaction that have created the current catastrophic situation.

“As such, rather than piling even more pressure on the sector through ever-bigger promises of ‘free childcare’, the government needs to focus on fixing the problems that it itself has created through years of underfunding and neglect.”