More than £65 million in early years entitlement funding was not spent on funded places by the end of 2023/24, according to a National Day Nurseries Association (NDNA) investigation.

Three quarters (75%) of 132 local authorities responding to an NDNA Freedom of Information (FOI) request said they had underspent on funded places. Cumulative underspends from 2018 to 2024 amount to almost £357 million.

Out of the 99 local authorities that reported an underspend, NDNA found 19 cases of underspends that were more than £1m and five councils that held onto more than £2m. These included Leicester, Lancashire, Gloucestershire, Worcestershire and Essex. Essex County Council reported the largest underspend of £10.3m at the end of 2023/24, but NDNA said it understood a large portion of this would be adjusted after the end of the financial year.

Only 4% of 129 councils said they re-distributed funds to early years providers. Those doing so include Hampshire, Suffolk and Nottinghamshire.

NDNA also found that 21 councils reported overspends amounting to £7m. Where councils overspend, they must recover funding from future years, meaning funding rates to providers can be lower.

NDNA’s executive chair Purnima Tanuku said: “We are committed to looking at local authority budgets every year because we keep finding money allocated for children’s funded places, not being spent for that purpose.

“This time it was almost a hundred local authorities telling us they had money left over from the 2023-24 budget. This is early years money which is crucial at this extremely challenging time for providers and parents. These are resources that must be used to provide high quality education and care to our youngest children.”

She added: “Private and voluntary nurseries are being asked to find more money for National Insurance Contributions (NICs), rising business rates bills and getting mixed messages on charging policies for meals, consumables and activities which aren’t funded through government rates. At the same time, school based nurseries are reimbursed for NIC costs and business rates and are receiving additional funding from the government, it risks creating a two-tier system.

“Every day we are hearing from nurseries who are worried about how they can remain open and how they will deliver more hours on the funding rates they currently receive. At this crucial time the government should be working with local authorities to ensure every penny supports the front line.

“From September the early years budget will have effectively doubled with the roll-out of 30 hours for children from nine months old. Putting double the resources through a leaky and overly complicated funding pipeline is a recipe for disaster.”

Teachers’ Pay and Pensions Grant

During the financial year 2023/24 the TPPG (Teachers Pay and Pensions Grant) was added to early years budgets for the first time.

Only 40% of local authorities said they made TPPG funding available to all PVI providers, adding it to the three and four-year-olds hourly rate.

A further 36% said that no PVIs were eligible for TPPG and that it went to schools and maintained academies.  Only 22% of councils distributed the TPPG funding uplift to those providers with teachers and 2% of councils did not have the information.  

Tanuku said: “The approaches from local authorities have created a real postcode lottery for providers. This grant was supposed to boost funding rates which could support providers to recruit more qualified staff.

“What we have seen is a completely mixed picture leaving some PVI providers with teachers completely excluded from any additional support via this grant.”