Most nurseries are likely to cut the number of three- and four-year old funded places they offer, or opt out of offering funded places for this age group entirely, according to an Early Years Alliance survey.

The vast majority (94% ) of providers are also likely to increase fees for non-government funded hours over the next year, with 77% likely to introduce or increase the price of optional extras, such as nappies, meals and trips,  68% likely to restrict when funded hours can be claimed  and 28% likely to permanently close.  

The online survey, which received over 1,100 responses from early years providers, found 41% are likely to reduce the number of funded three- and four-year-old places they offer over the next year, while 18% said that they could opt out of the three-and four-year-old scheme altogether. 

Only a third of providers offering funded two-year-old places for 15 hours a week are planning to extend all these places to 30 hours a week from September, with around two in five likely to do the same for funded places for under-twos. Nearly a fifth (18%) are likely to reduce the number of places they offer to two-year-olds over the next year, while a further 5% could opt out of the two-year-old scheme entirely. 

The most common reason for these changes, cited by 89% of respondents, was the impact of recently-updated government guidance, which clarifies that charges for additional goods and services related to funded places must be voluntary. Respondents also cited the impact of minimum and living  wage rises (66%) and National Insurance increases (57%).

Nine in ten nurseries that had received confirmation of their three- and four-year-old funding rate for 2025/26 warned that it will be less than the cost of delivering places, with more than half (55%) saying it will be significantly less.  

The Early Years Alliance is calling on the government to take urgent action to mitigate the impact of upcoming policy changes by:

• increasing investment into the early years, with a particular focus on increasing funding rates for three- and four-year-olds
• Establishing a mechanism to ensure that funding rates continue to increase in line with provider costs going forward  
• Either exempting early years providers from the National Insurance changes or committing to compensating providers in full for the increases

Neil Leitch, chief executive of the Early Years Alliance said:  “These survey findings should set alarm bells ringing across government. At a time when ministers are looking to significantly expand the early entitlement scheme, we have a huge proportion of providers warning that the exact opposite is likely, with many forced to limit funded places or opt out of the offers entirely due to unsustainable financial pressures.” 

He added: “While we of course recognise the need to ensure clarity and transparency for parents when it comes to additional charges for entitlement places, the fact is that this updated guidance has been implemented against a backdrop of severe and sustained underfunding, which the government has yet to address, or even acknowledge. Add to this the impact of upcoming increases in both National Insurance contributions and the national minimum and living wage, and you have a perfect storm of challenges for early years providers – one that many will not be able to survive.”   

June O’Sullivan, chief executive of London Early Years Foundation (LEYF),  said: “The financial pressures on early years providers are reaching a critical point. Rising costs, from national insurance to minimum wage increases, are forcing many to limit government-funded places or risk closure. 

“Without immediate action, we risk losing essential early education spaces that families – particularly those from disadvantaged backgrounds – depend on, along with the critical availability of secure spaces for babies. A sustainable funding solution is needed now to protect the sector and ensure all children can access quality early years education and care.”