IFS: This year’s funding rates 22% lower in real terms than in 2017
The Institute for Fiscal Studies (IFS) annual report on education spending in England shows how spending on education and in particular early years has dropped per child in real terms.
Most notably, despite record investment in funded places, the Government is paying 22% less in real terms to providers than it was in 2017 when the 30 hours policy was rolled out across the country.
Early years provider rates have remained flat in real terms since 2024 but employer costs – including minimum wages, National Insurance and pension contributions – have risen much steeper than overall inflation (55% compared with 35%), which accounts for the drop. But resources for two-year-olds have increased by 12% since 2017.
Across all remits, public spending on education has also fallen as a share of national income, from about 5.6% in 2010–11 to about 4.1% in 2024–25. This equals the historic lows seen in the late 1990s, late 1980s and mid 1960s.
Other key points the report reveals include:
- tighter eligibility criteria for the disadvantaged 2-year-old offer (which in 2024–25 covered 24% of children, down from 38% in 2014) have seen spending on this group fall both as a share of the early years budget and in absolute terms
- In 2024, spending of £480 million on eligible twos was less than half its level a decade earlier
- Over 90% of parents who applied for funded places and were approved for the entitlements secured a place
- However, there may be signs of additional pressure on supply in some parts of the country (notably in London)
- Take-up of the new entitlements has been significantly higher than initially expected – if the new entitlements continue to be as popular as they are now, the government is on track for perhaps £350 million (in today’s prices) in extra spending in 2028–29
Tim McLachlan, Chief Executive of National Day Nurseries Association (NDNA) said:
“Everyone involved in education knows that early investment in a child’s life is the best way to improve children’s outcomes longer-term. Despite this, the Government is still spending less on our children’s early years than at any other time in their education. This makes no sense. Nurseries are where the best start happens and need fair investment.
“Equally it’s appalling that nurseries are receiving almost a quarter less per child in real terms for funded places than they did a decade ago. This is so short-sighted. NDNA warned last year that the pressure on nurseries of paying the minimum wages and unexpected National Insurance Contributions would be huge and the consequences dire. This must be resolved so they can focus on delivering high quality early education to our youngest children. If 10% of parents can’t get a place, this situation could worsen if more settings have to close because they can’t afford to continue.
“We are also very concerned about the growing attainment gap between those children from the most disadvantaged families and their peers. The drop in overall funding of places for two-year-olds from disadvantaged backgrounds cannot be helping to address this. The criteria needs to be looked at and any children caught in the poverty trap must be added to this category so they get the early support which will make such a difference to their life chances.”
In summary the report concludes:
“This rapid growth in spending raises the stakes for good policy design. Unlike other stages of education, spending in the early years has at least three potential direct aims: supporting children’s development by providing high-quality early education; encouraging parents (especially mothers) to work by ensuring a supply of accessible and affordable childcare places; and reducing the amount that families spend on what can be a very expensive service.
“This trio of objectives maps onto the current government’s opportunity mission, growth mission and cost of living ‘milestone’. With a policy area that touches on so many core objectives of the government, there is a big opportunity to be had from getting the design of the early years system right. But this also makes policymaking much more difficult. There are real tensions and trade-offs between policies aimed at supporting children’s development or helping families into work – the types of families targeted, the level and design of the subsidy rate, and the emphasis on quality and flexibility will all differ.
“Rather than telling policymakers to choose just one objective, the key insight here is to think about whether the early years system as a whole is delivering on these different aims. A well-functioning early years system could have some policies that target labour supply while others focus on child development and the disadvantage gap. Instead trying to ensure that every policy ticks every box risks developing a set of programmes that fail to achieve their potential in each dimension.”
Read the full report here.
- England
- early education
- early years
- England
- government funding
- National Insurance
- NDNA
Similar Articles
Disappointment as Scottish Budget fails to address funding system inequalities
Nursery: Where the Best Start Happens - NDNA’s new campaign championing PVI nurseries
