Millions in early years funding not reaching providers to support families

Three quarters of local education authorities (LEAs) in England have reported underspending their Government funding for childcare places, another investigation by National Day Nurseries Association (NDNA) reveals.

Early Years Funding 2019-20 underspends and contingency budgets one year on - 55.5 of total underspends

Despite raising this issue a year ago with the Treasury and the Department for Education, with promises from the Government to look into the issue, millions of pounds of early education and childcare funding is still not reaching providers. They desperately need this to continue educating and caring for our youngest children.

Only a fifth of councils gave any of their underspent funding, for three and four-year-old places, back to providers. Almost half of LEAs who had underspent their funding said they rolled it forwards into their reserves and a quarter reported utilising them to offset deficits elsewhere within their schools budget.

Out of the 17 LEAs who reported underspends of more than £1 million for 2019/20, six of these were in a similar position the year before.

Purnima Tanuku OBE, Chief Executive of National Day Nurseries Association (NDNA), said:

“Following on from our investigation last year, which revealed some alarming levels of underspending, we wanted to see what councils were now doing with the money allocated for childcare places in 2019/20.

“We were shocked to find very similar results, with even more local authorities reporting that they had more than £1 million of unspent funding at the end of the year. The period covered by our research was just before the Covid-19 pandemic hit the UK.

“Over the years we have repeatedly asked the Government to ring-fence this money within the schools grant so that it can only be spent on funded places for three and four-year-olds. These places have been underfunded for years. Despite our ground-breaking report on this a year ago, lessons have not been learned and vital cash is still sitting in council coffers or being moved to pay for deficits in other areas.

Early Years Funding 2019-20 underspends and contingency budgets one year on - 17 local authority underspends

“More than ever it is crucial that funding for the sector reaches providers as they struggle to keep their businesses sustainable in the face of rising costs and lower demand due to the pandemic.
“The way early years are funded is incredibly complicated for parents, providers, councils and nationally. This is public money intended to support children but these findings suggest the full amount for each child is not getting to providers.

“The Government must simplify the way it funds early education and childcare places. It should adopt a Childcare Passport approach, an online account for each child which parents can use to pay the provider of their choice directly. NDNA has previously recommended such an approach as part of the solution. This would cut out any administration and ensure funding for a child follows that child wherever they take up a place.

“We welcome the fact that some local authorities have been using contingency funds to support providers during the past year as they struggle with all the pandemic has thrown at them. But it’s a postcode lottery with many nurseries on the brink of collapse.

“To discover so much money, allocated for early education and childcare, still not reaching providers is totally unacceptable given the recommendations we made last year. This must not be allowed to happen again and an urgent full review of early years funding is needed.”

Purnima added that the result of less money reaching childcare providers was that they could only afford to offer families fewer places. If money earmarked for childcare places is not being converted into creating places, children and families will suffer, particularly in areas of deprivation.

“This is just another example of where the Government has failed in its ambitions to level up. Giving all children a good early years education is the single most important step to take, which is why it’s crucial that funding rates are reviewed and that all this money actually pays for delivery of high quality places.”

Early Years Funding 2019-20 underspends and contingency budgets one year on -

NDNA put out a Freedom of Information request in November 2020 to 149 English local education authorities and received responses from 128 which revealed:

  • 94 LEAs (73% of those who responded) reported an underspend for 2019/20
  • Total underspends where LEAs gave a figure was £55.527 million (2 figures were missing)
  • 17 LEAs underspent by more than £1m each – see table in the report
  • 6 of these LEAs also made the £1m underspend list for the previous year
  • Only a fifth (21%) of LEAs gave any of these underspent funds to providers (£11.747m)
  • 45 LEAs put their underspent money (£24.944m) into their reserves or rolled it forwards within their Designated Schools Grant budget (DSG)
  • 30 LEAs used their underspent funding to offset deficits elsewhere in their DSG budget (£13.546m)
  • 52 LEAs reported contingency budgets for 2020/21 totalling £17.5m although 7 LEAs gave no information about contingencies
  • 1 LEA (Essex) reported a contingency budget of more than £1m; a further 9 reported contingencies of more than £0.5m
  • 25 LEAs reported an overspend for 2019/20 totalling £9.210m
  • 2 LEAs (Barking and Dagenham and Central Bedfordshire) overspent their budgets by more than £1m
  • 8 LEAs said they had balanced their books perfectly, left with neither an overspend nor an underspend
  • 21 LEAs didn’t respond to the FOI and 8 responses from the 128 were unclear or incomplete.

NDNA recommends that the Government urgently challenges all local authorities with large underspends or contingency budgets and ring-fences childcare funding so it can’t be used to offset other deficits. It also recommends that business rates for nursery businesses must be scrapped and urgent financial support for nurseries badly impacted by the pandemic should be put in place.

NDNA has put a summary spreadsheet where anyone can see the situation in their own local authority area along with their funding rates.

Regional breakdown of responses:

  • North East – 7 LEAs reported underspends, 3 had overspends, 2 gave no info
  • North West – 16 LEAs reported an underspend; 2 had overspends; 2 balanced their budgets exactly; 3 gave no info
  • Yorkshire and Humber – 11 LEAs reported an underspend, 2 of more than £1m; none of them overspent; 4 did not respond
  • East Midlands – 6 LEAs reported an underspend, 1 of more than £1m; 2 reported an overspend and 1 didn’t respond
  • West Midlands – 11 LEAs reported an underspend, 2 of more than £1m; 2 reported overspends and 1 did not respond
  • East of England – 6 LEAs had an underspend including 1 of more than £1m, 4 had overspends including 1 of more than £m; 1 gave no response; 1 reported a contingency of more than £1m
  • London – 16 LEAs reported an underspend, 7 of more than £1m; 7 reported overspends, 1 of more than £1m; 4 balanced their books exactly and 4 gave no response. 6 had contingencies of more than £0.5m
  • South East – 13 LEAs reported an underspend, 1 of more than £1m; 4 had an overspend; 1 balanced their books and 1 did not respond. 1 reported a contingency of more than £0.5m
  • South West – 8 LEAs reported an underspend, 1 of which was over £1m; 4 reported overspends and 1 balanced their books. 1 did not respond, 1 reported a contingency of more than £0.5m.


  • England
  • childcare
  • Covid-19 pandemic
  • Department for Education
  • early education
  • early years
  • Government
  • local authorities
  • NDNA
  • underspent funding

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