New childcare funding rates fall short of rocketing nursery costs

With childcare providers’ costs due to rise dramatically from April, the Government has today unveiled hourly funding rates which for nurseries in some local authorities will only rise by 1%.

Following intense lobbying by National Day Nurseries Association (NDNA) and the early years sector in the wake of the Autumn Statement, the Government has agreed to invest an additional £20m into the childcare rates. But the average increase for three and four-year-old places is 3.4% which falls well short of the minimum amount necessary for providers to cover their costs.

The largest rise in funding rates will be 5.6% in Leicestershire. Across England, 35 areas remain on the lowest funding rate of £4.87 per hour and 42 areas have an uplift of just 1% on current rates.

For two-year-olds, the average increase is 4% with the highest increase of 10% seen in 31 local authority areas, showing how many have been underfunded. However, 89 council areas will see an increase that is below the 4% average and 72 of these will see an increase of 2% or lower.

Purnima Tanuku OBE, Chief Executive of National Day Nurseries Association (NDNA) said: “NDNA has been lobbying the Government continually for a childcare funding rate which enables providers to cover their costs.

“Any additional funding is welcome to help childcare providers, however the increases announced are well below inflation and a fraction of the £2 billion announced to help schools face similar rising costs. The devil will be in the detail of how much this translates to for providers once local authorities factor in the changes to teachers’ pension funding.

“In nearly a third of councils, the increase will be around 1% which is a massive cut in real terms. Providers in these areas are already struggling and this will have disastrous consequences for their sustainability.

“Ofsted data has now backed up our research showing that nurseries are closing their doors at record rates due to underfunding. That means any increase in funding must be ring-fenced. We know funding rates are not covering provider’s costs so it is vital that every penny follows the child to the setting where they take up a place.

“The Prime Minister has told MPs he has an ambitious plan for childcare. And MPs agree in Parliamentary debates about how much the first five years count – giving all children the best start in life, supporting their development and enabling parents to work. It does not make sense then that they are not prepared to invest in it sufficiently.

“The funding each child gets will increase by less than 4% but the real costs for providers will be well over 10% higher. Every child in early years learns about quantity, number and understands less and more. While Ministers have recognised that something needs to be done, they are not doing enough for our children, families and childcare providers.”

Funding gap: nursery staffing costs and interest rates vs Government funding rates

From April, nurseries and other childcare providers will face the following cost pressures:

  • 10% increase in minimum statutory wages for staff – wage bills amount to 76% of nurseries’ operating costs
  • Business rates bill – NDNA research found the average nursery’s bill was £13,250 a year while businesses in retail, leisure and hospitality receive a 75% discount
  • Food prices still at 16% inflation and energy costs that are 3 to 6 times higher than last year, general inflation running at 11.1%
  • Mortgage and rent increases as interest rates rise again to 3.5%

Private nurseries unlike schools have to pay business rates although nurseries in Scotland and Wales are exempt due to the fact that they deliver places on behalf of their governments. NDNA has been lobbying for nurseries in England, for whom the average bill is now £13,267, the equivalent of delivering 15-hour per week places for five children, to have 100% discount.

Despite NDNA’s investigation into local authority childcare funding underspends, which found at least £115m unspent over the last three years, NDNA is disappointed that the DfE has not ringfenced money meant for childcare places. This means that money meant for early years can continue to be used to offset other deficits in local authorities’ schools budget.

Read the release here: Early years funding: 2023 to 2024

Funding rate comparison table 2023-24 by region

Funding rate comparison table 2023-23 from lowest rate to highest rate

  • England
  • 2023/24
  • business rates
  • Funding Rates

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