‘Government approach to childcare funding could lead to nursery closures’

A report from the Institute of Fiscal Studies is critical of the Government’s new approach to funding free childcare for three and four years olds and disadvantaged two year olds through the pandemic.



The Government’s decision to cap funding for its free childcare provisions in the light of potentially fluctuating registration figures is ‘ill-advised’ and could cause problems for providers and local authorities as lockdown eases, with some nurseries possibly going bust, according a new report.

The Institute for Fiscal Studies’ report on government funding for up to 30 hours’ free childcare for three and four year olds and disadvantaged two year olds says the decision, which responds to Covid uncertainty, means government funding over the coming months could be tightest exactly where there is most demand for childcare.

It points out that, normally, to estimate funding needs for the free hours, the Government asks providers to record the number of hours children are using in a particular week – census week – in January. This is then multiplied by 38 (the number of weeks in an academic year) to arrive at an overall estimate of free childcare use in a given year.

Last autumn, it continued to provide funding based on January 2020 figures due to the pandemic. The IFS says this offered some financial protection and certainty to providers during an autumn characterised by local and national lockdowns and frequent closures in response to Covid-19 cases. The Government had intended to return to the pre-pandemic system from this term, with funding for the rest of this academic year based on attendance at childcare settings in census week. However, figures released in January show attendance figures are down, with just over half of children taking places than would have been expected in ‘normal’ circumstances, equivalent to half a million fewer 0-4 year olds attending childcare. The IFS says: “If this low take-up were reflected in funding levels for the rest of the academic year, it would have serious financial implications for local authorities and childcare providers.”

In light of these figures, the Government has revised its approach, with the census now being based on the number of children registered for places – even when those parents are choosing to keep their children at home during the lockdown. The Department for Education has also said that it will fund any additional places over and above those currently registered during the spring term, at least up to 85% of January 2020 attendance levels. The IFS is critical of this approach, given that it says childcare registrations may fluctuate due to Covid as attendance levels have. It points out that childcare attendance increased from roughly 50% of expected levels in September to over 90% in November, then fell to around 50% in January.

It says: “While physical attendance this week is clearly not a good basis for funding providers, it is not clear that current registration levels will reflect childcare demand for the rest of the year either. For example, children with birthdays during the autumn term would have been expected to start accessing their free childcare hours this term, but it is unclear whether parents would have registered their children to do so, in light of current circumstances.”

It says if there are changes in registration levels as the lockdown eases, which it calls “a real possibility”, many local authorities may find themselves relying on the Department for Education’s promise to fund additional places. The IFS criticises the 85% cap and says no clear reason has been given for this.

It states that there is a risk in tightening the funding environment now that some otherwise-viable providers will go bust and it will be costlier and more difficult to rebuild this capacity later on than it would have been to support it to stay open.


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