Government must act now to ensure nurseries can still deliver the best start in life for children
Rising childcare costs and inadequate funding are pushing nurseries across England to breaking point. Settings are under increasing pressure to remain stable unless urgent action is taken on the funded childcare system, a national charity has warned.
National Day Nurseries Association (NDNA) has published new findings from its nursery sustainability survey in England. It reveals that the overwhelming majority of nurseries say current funding rates do not cover the true cost of delivering government-funded places.
Rising costs and inadequate funding threaten nursery sustainability
Nine in 10 nurseries (87%) reported that funding rates for three and four-year-olds do not cover their costs, while more than half said funding for two-year-olds also falls short (57%). Providers who are underfunded estimate an average shortfall of £2.61 per hour per child for three and four-year-old places, up 25pph compared to last year’s shortfall of £2.36.
When it came to funding for two-year-old places, respondents reported a shortfall of £1.79 per hour for two-year-old places, up 10pph from last year’s £1.69.
As a result of these pressures, two thirds of settings expect to either break even or make a loss this financial year (66%), limiting their ability to invest in quality, staff development and early intervention for children. Nurseries need to make a surplus to reinvest in staff training and resources.
The survey has also highlighted the scale of cost inflation facing the early years sector. Nurseries estimate that staffing costs alone will rise significantly over the coming year due to increases in the National Living Wage and statutory employment costs, far outstripping the 4.95% uplift in government funding rates. Respondents reported an average increase in staffing costs of 10.84%. This figure does not include inflation affecting higher energy, food and business rates bills.
Despite this, nurseries are continuing to work hard to protect parents from sharp fee increases, reporting an average planned increase for 2026/27 of 6.1%. Many said that planned fee rises would be lower than the overall rise in costs, even though more than four in five said they would have little choice but to increase these fees to remain open.
Tim McLachlan, Chief Executive of NDNA said:
“Across England, providers are facing relentless cost increases, particularly for staffing while funding rates remain well below the real cost of delivery. Nurseries are doing everything they can to shield parents from the full impact, but if government funding does not meet costs, the gap inevitably falls on families or forces settings to scale back or close.
“The Government has put giving children the best start in life at the heart of their mission, but this cannot be done on the cheap. Too much of the work being asked of nurseries is underfunded, or unfunded, and that must be addressed.
“One expense Ministers could deal with at the stroke of a pen is the unfair burden of business rates, with an average bill of £22,000 and some nurseries looking at six figure bills, this is a misplaced tax on the space nurseries give our children to play, learn and grow.
“If the Government is serious about improving outcomes for children, supporting working families and boosting the earnings and recognition for our amazing workforce then it needs to fund nurseries fairly. We need an early years sector that is thriving, not just surviving.”
Nurseries grapple with rising business rates
One expense ministers could deal with at the stroke of a pen is the unfair burden of business rates, which school settings do not have to pay from within their early years funding. With an average bill of almost £23,000 and some nurseries looking at six figure bills, this is a misplaced tax on the space nurseries give our children to play, learn and grow. This bill is up from £21,000 last year and for the majority of nurseries, it was discounted.
To manage funding shortfalls and rising costs, nurseries said they are already taking difficult decisions including:
- Reducing spending on play and learning resources
- Delaying investment in buildings, equipment and outdoor spaces
- Cutting staff hours or reducing staffing levels.
Providers warned that these actions are not sustainable long term and risk undermining quality and capacity. This is an unfair tax on businesses who support children’s learning. The government has recognised the pressures that nurseries in schools, as well as PVI nurseries in Wales and Scotland are under and the vital work they do. PVI nurseries in England must be treated fairly and be extended the same courtesy.
CCTV and its use in nurseries
Mandatory CCTV in nurseries is a major topic of conversation at the moment, as there have been some high-profile cases of abuse occurring in settings recently. We decided to ask our England members about their thoughts on CCTV in the survey.
When asked about whether their setting used CCTV inside the setting, 36% of nurseries already had CCTV in place, and the other 36% didn’t and had no plans to introduce it. The remaining quarter (27%) don’t use it but are considering introducing it. The factors affecting their decision included set up or maintenance costs, concerns around children’s and staff privacy and being compliant with laws and regulatory frameworks around CCTV footage.
Survey findings in summary
- Around 87% of nurseries say funding rates for three and four-year-olds do not cover costs
- The average funding shortfall is close to £3 per hour per child for three and four-year-old places
- More than half of providers say two-year-old funding does not cover costs, with an average shortfall of around £2 per hour
- The majority of nurseries expect to break even or make a loss this financial year
- Staffing costs are rising sharply due to wage increases, alongside higher energy, food and premises costs
- Over 80% of nurseries say they will need to increase fees for parents to survive.
NDNA is calling on ministers to engage urgently with the sector to secure a sustainable future for early years education in England, before further capacity is lost and parental choice is reduced.
- England
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