Covid year – Around £55m of early years funding unspent during worst of Covid pandemic

Around £55m of early years funding unspent as childcare providers struggled through Covid challenges

National Day Nurseries Association (NDNA) has discovered that at least £55 million of early years funding was either left unspent or allocated against other budget pressures in 2020/21 by local authorities.

A huge proportion of this sat in designated schools grant reserves.

This was for the financial year during the worst of the Covid pandemic from April 2020 to March 2021 when three-quarters of nurseries were forced to close temporarily due to Covid absences during the winter months. Nurseries across England struggled to survive on lower parental income as many children stayed at home and faced higher costs associated with measures to keep nurseries as safe as possible.

Early years funding is calculated using a national formula then paid to local education authorities (LEAs) to distribute to providers. Out of those LEAs who responded with a clear answer, 80% (106) reported an underspend in all or some areas of their early years funding totalling £55m.

For three and four-year-olds places alone, this totalled £40m. Only eight LEAs said they gave some or all of this money back to providers in either a lump sum, grant or by increasing their funding rate. A total of 29 councils put £16m into their reserves and a further 17 had not decided how to proceed or did not give any information about this. Another nine LEAs used their underspend to offset deficits elsewhere.

Fifteen local authorities reported underspends of more than £1m each, three of these for the third year running. Almost half (47%) of LEAs who have responded to our FOI investigation for these three years reported underspends for each year, totalling more than £115m.

This year’s investigation also revealed that 24 LEAs had their funding “clawed back” or “adjusted” by the Department for Education. In some cases, this left councils with a deficit when previously they had surplus money. A further ten councils told us they expected some or all of their unspent money to be clawed back.

Purnima Tanuku OBE, Chief Executive of National Day Nurseries Association (NDNA) said: “The year covered by this investigation saw the full national lockdown for Covid-19 and some real challenges for early years providers. With this in mind, every penny of funding needed to go to providers to keep them going.

“However, we have seen tens of millions of pounds not reaching the frontline. This funding is meant to support two-year-olds and three and four-year-olds but where it is left unspent, it ends up offsetting other deficits or being rolled into reserves.

“This is outrageous and an insult to the early years sector at a time when they are most struggling to deliver high quality early education and balance their books. We need to see clear plans from the Government to ring-fence early years spending and make sure it’s doing what they intend – supporting children with access to high-quality early education that makes a difference to their life chances.

“Looking back over three years, over a third of all LEAs have consistently underspent to the tune of £115 million. Almost two-thirds of these have kept this money in reserves or could not tell us how they planned to use this money.

“We were also surprised that a third of councils had overspent on two-year-old places when many younger children were not taking up their places during the pandemic.

“This funding system is not fit for purpose and needs a fundamental review. Children, families and providers deserve a system that works for them and ensures support follows the child it is intended for all the way to the providers delivering their places.”

Mrs Tanuku added that all the new funding which was announced last year for 2022/23 must reach providers who need to find an additional £12,600 average to pay business rates and a significant increase in their wages bills from April.

Urgent recommendations:


• The Department for Education (DfE) should bring forward a comprehensive review of how early education and childcare is funded. This must:
o Ensure funding follows the child it is intended to support
o Reduce the administrative burdens on LEAs and providers to ensure time and funding is spent on education and care for children
o Annually review the true delivery costs of high quality care and education and ensure that the funding rate reflects these
o Maximise the understanding and uptake of childcare and early education support among parents
• The underspends and budget adjustments/claw-back reported must be investigated and any underspends should be invested in high quality early education and care
• The DfE should ring-fence all early years block funding to ensure it is only spent on children’s early education and care. All additional funding for early years should be ring-fenced to ensure it is passed through to providers
• To support the educational recovery of children from disadvantaged backgrounds the early years pupil premium should be brought in line with the rate paid to primary schools
• The DfE must ensure there are adequate resources in the High Needs block of the DSG to fully support all children with additional needs
• The DfE should investigate the cause of overspends in two-year-old funding to understand whether the funded places would be viable if more eligible families take up places
• The DfE should bring forward a requirement for local authorities with an underspend in their early years block to consult with providers on how that can be used to support children
• The Government should extend the current business rates discount for childcare businesses to ease the burden of increased costs in the coming financial year.

Key points from NDNAs underspends research for 2020/1 funding:

• 80% (106) of LEAs who responded underspent in all or some areas of their EY funding
• 76 LEAs (67% of those who gave clear responses) underspent their 3 and 4 year old funding by £40m; £16m of this went into council reserves (29 LEAs) and only 8 LEAs gave all or some back to providers (£5.6m)
• 64 LEAs (55%) underspent their 2 year old funding totalling £10.4m
• Across their whole early years budget, 86 LEAs (69% of those who responded) reported unspent funding
• 15 LEAs reported an underspend of more than £1m
• Six LEAs said they had exactly balanced their books for 3 and 4 year old funding and nine reported balancing their 2 year old funding (eg no over or underspend)
• 32 LEAs overspent their over early years budget by £8.4m
• 16 LEAs did not split their figures down into different age groups
• 136 out of 149 LEAs responded to our FOI request – 131 were included in the analysis
• Five LEAs could not give us any information we requested
• 55 LEAs (47% of those who have given us responses for the last three years) have consistently reported underspends; only 27% gave any of this money back to providers
• 24 LEAs said their unspent funding was adjusted by DfE; 10 more councils expected their underspends to be adjusted

Download our report and look up your own LEA on the spreadsheets below – by region or by separate LEA.