IFS charts bleak outlook for childcare funding

A new report on childcare charts falling spending on education over the last decades, with the full effects of the cost of living crisis yet to be felt on childcare.

Child playing with toys whilst in chilcare


Childcare providers face a big squeeze due to rising costs, most of which have yet to be felt, while childcare benefits are falling and core funding per child for free entitlements is expected to decline by 3%, according to a report by the Institute for Fiscal Studies.

In its fifth annual report on education spending funded by the Nuffield Foundation, the IFS charts the fall in education spending since the 1970s to a ‘historical low’ today.  It says that, in the late 1970s, education spending represented 12% of total government spending, making it the equal largest area of government spending. This has fallen to 10% of total government spending in 2021–22. At the same time, the number of people in full-time education has risen to the highest level in at least 60 years. Meanwhile, as the population ages, spending on healthcare has more than doubled since the 70s.

While spending on the early years has grown since the 2010s due to the increase in free entitlement spending, including new entitlements for disadvantaged two year olds and for three and four year olds in working families, childcare providers are struggling, with an increase in closures over the last year and predictions of more to come. The IFS says providers are currently experiencing faster rises in costs than overall levels of inflation, in part due to the rising national living wage which many of its employees are on. The IFS estimates that the prices facing childcare providers will have grown by 32% between 2017–18 and 2024–25.

It also estimates that, due to cost of living pressures, total spending on the free entitlement will buy 9% less in 2024–25 compared with 2021–22 and that “virtually all of this squeeze is yet to be felt”. It says this will be mitigated due to an expected drop in the number of three and four year olds, but the real-terms value of core funding per hour – currently at £5.06 per hour – will drop by 3%.

Moreover, while free entitlement spending has risen, spending on childcare subsidies through the working-age benefit system fell from £1.8 billion in 2009–10 to £660 million in 2021–22. The IFS says: “Whilst some of this decline relates to the effects of the pandemic, it mainly reflects less generous payments, a squeeze on caseloads and, more recently, the transition to universal credit.”

Meanwhile, the Guardian is reporting that a cross-party group of MPs is seeking to get an amendment to the levelling up and regeneration bill passed so that childcare is treated as a basic infrastructure issue, meaning there would be a duty on major housebuilders to ensure new developments have sufficient provision. The initiative is led by Labour’s Stella Creasy.


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