Childcare experts ‘extremely concerned’ about funding rates for three and four year olds

The Government’s childcare funding announcement has left providers with an average increase of just 32p per hour for three and four year olds, according to analysis by the National Day Nurseries Association. 

The Government announced the hourly funding rates in September, saying this would support its childcare expansion plans from April 2024. 

The NDNA says that the average hourly rate has increased from £4.85 to £5.17 and that, in some council areas, the proportion of funding they pay directly to providers as a base rate has gone down instead of up. The increase for two year olds was an extra £2.02 per hour, although currently only those in the most deprived areas can access this.

Councils fund early years places by paying a base rate per hour which all eligible children in early years settings are entitled to. They can then top-slice their budgets to create supplements for specific purposes such as deprivation, SEND support or provider quality. Local authorities have a duty to “pass through” 95% of their total funding to providers, but many use these “supplements” which are distributed to some providers and eligible children, but not all. This means that some children in nurseries will only receive the base rate amount. 

Analysing base rates as a proportion of their central funding, NDNA found a varied approach, with base rates ranging from 76% to 97% of the full funding amounts. The NDNA says the average rate the Government says it pays to local authorities in England for three and four-year-old places is now £5.62, but the average rate that providers receive as their base rate is £5.17 

Purnima Tanuku, Chief Executive of the NDNA, said: “At a time when nursery costs are rising sharply and we have seen more settings close their doors, increasing funding by only 32p is clearly not enough. Having analysed the base rates that providers are receiving across England, we are extremely concerned that too many councils are not passing on more to providers for the delivery of funded early education and care.  

“The system that has been set up is so complicated that families struggle to understand what they are entitled to and providers have to spend a lot of time on administration that could be better spent with children. With the expansion coming on board, the investment will not be well spent if money goes into the same overly complex system.”  

She added: “We are expecting the new minimum wage rates soon for April 2024 and we already know from the Chancellor that the National Living Wage will rise to at least £11 per hour. The funding must be increased to allow for this, along with inflation for energy and food, rising interest rates and business rates.  

“Increasing the two-year-old rate but doing very little with the rate for three and four-year-olds leaves more providers in a financially vulnerable position. NDNA have said in our Blueprint that funding needs to be reviewed annually to make sure it is keeping pace with rising costs and supports the sustainability of the sector.”   

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