Childcare increases ‘almost certainly not enough’

A new report from the Institute for Fiscal Studies shows increases to early years funding are not enough in the face of increasing costs.

Close up of child's hands playing with colorful plastic bricks and red motocicle at the table. Toddler having fun and building out of bright constructor bricks. Early years childcare


Increases announced in early years spending “will almost certainly not be enough to compensate for rising costs”, according to a report on education by the Institute for Fiscal Studies.

It says the recent Spending Review included about an extra £170 million per year for the early years entitlement while the government recently announced that, in 2022-23, it will use some of this money to increase the core funding rate for those accessing ‘free’ childcare for three and four year olds by 17p an hour.

However, the IFS says that a rising minimum wage and new taxes like the health and social care levy will mean this is swallowed up.

The report comes as figures from Ofsted for England show that, despite the number of childcare places remaining relatively stable since 2015, some areas have seen as much as a 25% decline in early years places. Seventy out of 149 local authorities have seen the number of early years places decline over the past six years. Of the 10 local authorities with the largest decline in early years places, six are in the South-West, with the top five being Torbay, Darlington, Isles of Scilly, Dorset and Calderdale. In comparison, all but one of the local authorities seeing the biggest increase in early years places are in London. The data also shows that all but one local authority (Hackney) has seen a decline in the number of early years providers operating since 2015.

The IFS report charts how government spending on funded early education and childcare places stood at £3.8 billion in 2020–21. While that is equivalent to £4,200 per three and four year old accessing a place [compared to £3,900 per child the year before], it is partly inflated by reduced numbers of children attending early years settings during the pandemic.  It says that hourly spending on free childcare has gone up and down over the past decade, with “meaningful boosts” in 2012 and 2017 followed by years of cash-terms freezes which “eroded spending power in real terms”. In 2020–21, for instance, extra funding led spending per hour to rise in real terms from £5.44 to £5.71, but that was about the same level as two years earlier and less than its high point of £5.89 in 2017.

Neil Leitch, chief executive of the Early Years Alliance, said: “This analysis from the IFS makes clear that while next year’s increase in early years funding may be greater than previous increases, it is likely to be completely eroded by minimum wage rises, increases in national insurance contributions and general inflationary pressures.

“Add to this the fact that many nurseries, pre-schools and childminding settings are still battling with the impact of being grossly underfunded for several years and the ongoing effect of the Covid-19 pandemic, and it’s clear why so many early years providers remain incredibly concerned about their ability to remain sustainable.”

Calling for a rethink on the approach to early years, Leitch added: “The government should invest what is needed to ensure the delivery of affordable, quality and, crucially, sustainable care and education, both now and in the long term.”

The report also covers other parts of the education sector, for instance, finding that spending on schools in deprived areas have seen larger cuts over the last decade that those in more affluent areas. The most deprived secondary schools saw a 14% real-terms fall in spending per pupil between 2009–10 and 2019–20, compared with a 9% drop for the least deprived schools, says the report. It adds that the National Funding Formula has continued this pattern by providing bigger real-terms increases for the least deprived schools (8–9%) than for the most deprived ones (5%) between 2017–18 and 2022–23.

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