FOI Report

Early years funding – millions used for other purposes or taken back by DfE

Local authorities are continuing to use £millions of early years funding to offset other deficits or put in reserves, according to an investigation by National Day Nurseries Association (NDNA).

As the biggest voice for the sector, the charity also discovered that almost £60m of early entitlement funding was “clawed back” by the Department for Education (DfE) from childcare places for 2021/22.

A Freedom of Information (FOI) request to all local education authorities (LEAs) in England asked whether they had overspent or underspent their early years funding allocation for places in 2021/22.

In total, NDNA found that £46m of early entitlement funding was unspent by 92 councils, with 37% using this money (£15m) to offset deficits within their Designated Schools Grant. Almost half of these used £5m to set against their High Needs Block losses.

A third of LEAs put their unspent funding (£15m) in their reserves. Only 11 councils gave any of this money back to providers in the form of a funding rate boost or one-off grant. A further 16 had not decided or did not tell us how they would spend £7.6m.

A total of 43 LEAs (37% of those who have responded every year) have ended up with a surplus four years in a row. Only six of these gave any of this money back to nurseries.

Fifteen local authorities underspent by £1m or more; Islington has consistently reported an underspend of more than £1 m for the last four years. A further four councils had a million plus underspend in three of the last four years.

NDNA has uncovered a total of £229m was not spent on early years places during the financial years from 2018 to 2022.

Unusually, 46 councils had overspent by £23m compared with just 32 overspending the previous year by £8m. Of these 35 had a funding rate of under £5 and 14 had the lowest funding rate of £4.44.

Purnima Tanuku OBE, Chief Executive of NDNA, said: “This is our fourth year investigating underspends in early years funding and once again, the results are shocking.

“Lessons still aren’t being learnt, with too much of the funding meant for early education and childcare places being used to offset other deficits or put into reserves. Almost half of those who reported an underspend have done so since we started looking into this four years ago.

“The same thing keeps happening year on year. Of the 15 councils who had more than £1m underspends this year, four of them have been in this position for three of the last four years.

“We are also concerned at the number of local authorities who are overspending, particularly those with huge overspends. Providers are now being penalised as councils have no choice but to recoup their losses from future funding. Three-quarters of councils with overspends had a low funding rate, which could help to explain how they ended up in this position.”

The FOI also asked about any adjustments made by DfE either during the year or post-year, once accounts had been finalised. NDNA’s report discovered that during 21-22, the DfE “clawed back” £89m but gave an additional £7m of funding. After the financial year, the DfE removed a further £8m but gave back £31m. Overall the net adjustment figure for 21-22 was £59.3m going back to central government.

Purnima added: “The government regularly shout about how many millions they have invested in early years funded places and yet we see that over £105 million has not reached providers on the front line.

“NDNA has been calling for this money to be ringfenced so it can only be used for early years places. At a time when providers will be under pressure to get ready to deliver funded places for all two-year-olds in less than a year’s time, they should be better supported by councils. This system needs fixing and reforming now if the early years sector is going to have a hope of delivering the Government’s new plans.

“We need a transparent and clear system that has children at its heart and works for both parents and providers, in which we know what money is going where.”

Key points from NDNAs underspends research for 2021/2 funding:

  • 62% (92) of LEAs who responded underspent their EY funding by £45.8m
  • £15m of this went into council reserves (30 LEAs) and only 11 LEAs gave all or some back to providers (£7.8)
  • 15 LEAs reported an underspend of more than £1m – one of these has underspent by £1m for four years running; four other LEAs have underspent by £1m in three of the last four years
  • Two LEAs said they had exactly balanced their books (eg no over or underspend) and a further six said they had no over or underspend
  • 46 LEAs overspent their over early years budget by £23.1m
  • 6 LEAs overspent by more than £1m compared with just one in the previous year – Leicestershire overspent by £4.2m
  • 149 out of 150 LEAs responded to our FOI request – Hartlepool did not respond
  • 3 responses could not be analysed because they said the Qs were not applicable to them
  • 43 LEAs (37% of those who have given us responses for the last four years) have consistently reported underspends totalling £111m; only six of these gave any of this money back to providers in 21/22
  • Since the investigations began in 2018, NDNA has uncovered underspends of £229m
  • Surrey reported a cumulative underspend of £10.4m over the last four years; three other LEAs Islington (£7.6m), Hertfordshire (£6.8m) and Leeds (£6.4m) had huge cumulative underspends over £5m.
  • 72 LEAs reported an in-year negative adjustment by DfE of £89m
  • 12 LEAs reported an in-year positive adjustment by DfE of £7m
  • A further 24 LEAs said they had a post-year negative adjustment of £7.9m
  • 98 LEAs had a post-year positive adjustment totalling £30.7m
  • Total clawbacks (negative adjustments) was £99m
  • Total positive adjustments was £37.7m
  • Net DfE adjustment figure was -£59.3m.

A combined amount of £59.3m plus underspends of £45.8m means that £105.1m earmarked for children’s places in 21/22 has not been spent on these EY places.

Download the full NDNA Underspends Report 2023

To see how your local authority did download the summary spreadsheet by region for 21-22

Download the summary spreadsheet by region with dashboard here.

  • England
  • Adjustment
  • EY Underspend
  • Freedom of Information
  • Local Authority Underspend

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