The Government’s childcare funding announcement has left providers with ‘a very small increase’, averaging just 32p per hour for three and four-year-olds, analysis by the National Day Nurseries Association (NDNA) has found.

When Education Secretary Gillian Keegan announced the £204m additional funding to increase hourly rates from September. ‘This was heralded as supporting childcare providers to get ready for the big expansion of funded places from April 2024’, NDNA said.  

However, the NDNA said in some council areas, ‘the proportion of funding they pay directly as a base rate has gone down instead of up, with children missing out as a result’.  

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Analysis of hourly funding base rates 

The early years organisation has analysed the hourly funding base rates - the amount of funding every child in early years settings is entitled to - and found the average rate increased from £4.85 to £5.17.The increase for two-year-olds was an extra £2.02 per hour.  

Local authorities have a duty to “pass through” 95 per cent of their total funding to providers. Many use “supplements” which are distributed to some providers and eligible children, but not all. This means that some children in nurseries will only receive the base rate amount.   

Analysing base rates as a proportion of council’s central funding, the NDNA found a varied approach, with base rates ranging from 76 per cent to 97 per cent of their full funding amounts.  

NDNA’s analysis of the September 2023 funding base rates found a quarter of English local authorities were not giving providers more than 88 per cent in their EY base rate funding for three and four-year-olds, despite the recent uplift from Government.  

The analysis revealed a total of 19 local authorities out of 111 analysed were not passing on the full amount of funding increases to providers through their base rates. In five of these areas, the base rates paid were now proportionally less of the total councils receive from Government than they were in April to August.  

Eight out of the ten councils who were paying the lowest proportional base rates to providers were in the London area.

The average rate the Department for Education (DfE) said it paid to local authorities in England for three and four-year-old places was £5.62, but the average rate that providers received was their base rate was £5.17. 

The average base rate was 90.57 per cent of the rate the local authority received. Only a third of local authorities in the sample of 111 give providers more than 92 per cent in their base rate.

For the two-year-old funding, although these amounts were much higher, 15 councils were paying proportionally less of the Government money to providers than previously. This ranged from 0p to - 88p per hour. But 95 local authorities were passing on more than 92 per cent.

‘Increasing funding by only 32p is clearly not enough’ 

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said: ‘At a time when nursery costs are rising sharply and we have seen more settings close their doors, increasing funding by only 32p is clearly not enough. Having analysed the base rates that providers are receiving across England, we are extremely concerned that too many councils are not passing on more to providers for the delivery of funded early education and care.  

‘The system that has been set up is so complicated that families struggle to understand what they are entitled to and providers have to spend a lot of time on administration that could be better spent with children. With the expansion coming on board, the investment will not be well spent if money goes into the same overly complex system.   

‘We have been lobbying the Government for years that the funding rate has been too low to realistically pay for high-quality early education and care for our youngest children. It’s this quality of provision which is so important to give all children the best start in life and support them to reach their full potential.   

‘We are expecting the new minimum wage rates soon for April 2024 and we already know from the Chancellor that the National Living Wage will rise to at least £11 per hour. The funding must be increased to allow for this, along with inflation for energy and food, rising interest rates and business rates.   

‘Increasing the two-year-old rate but doing very little with the rate for three and four-year-olds leaves more providers in a financially vulnerable position.”