Study claims free childcare scheme is ‘chronically underfunded’

Families could face higher childcare bills if a major gap in funding for free places continues, campaigners are warning.

The Government’s scheme to offer free care for young children is in “crisis”, it is suggested, as the money available does not cover the cost of providing good quality places.

As a result, nurseries and pre-schools are being forced to make up the difference out of their own pockets.

Under the current system, all three and four-year-olds in England are entitled to up to 15 hours of free childcare a week, and this is also being extended to the most disadvantaged two-year-olds.

Money to pay for the free childcare hours is given to local councils by central government to hand to nurseries and pre-schools that have children taking up the entitlement.

But a new study, commissioned by the Pre-School Learning Alliance, concludes that Government funding for the scheme only covers four out of every five children taking up the offer.

Researchers examined the cost of providing more than 180,000 hours of pre-school education and childcare for 5,635 children being cared for by a randomly selected group of nurseries and pre-schools.

The findings show that the average hourly cost of providing a funded childcare place for a three or four-year-old is £4.53, but nurseries and pre-schools are funded at a rate of £3.88 per hour per child on average.

This is a shortfall in money of around 18%, which rises to 21% when the cost of unpaid staff hours is taken into account, the report concludes.

For two-year-olds, the average hourly cost of providing a place is £5.97, but nurseries and pre-schools get around £5.19, a gap of 15%, which rises to 18% when unpaid staff hours are included, it adds.

“This research suggests that if settings do not or cannot absorb funding deficits, the consequence of continued underfunding is likely to be increased childcare costs for families and/or a retraction in the supply of funded places; both being scenarios which undermine policy objectives to increase the affordability, quality and accessibility of early years education,” the study, by research consultancy Ceeda, says.

Figures obtained by the alliance under a Freedom of Information request to local authorities show how many councils have made changes to the funding rates for free places in recent years.

Of the 126 authorities that responded, 29% said they had made no changes in the last three to four years to the base rates of funding they give nurseries and other providers for the free entitlement offer, the alliance claimed.

Alliance chief executive Neil Leitch said: “This research demonstrates what we in the sector have been saying for many years now: Government funding for the free entitlement offer does not meet the cost of providing places. For every four children that access a Government-funded place at a private, voluntary and independent (PVI) setting, providers have to fund a fifth out of their own pocket. This is clearly not sustainable.

“We know that the first five years of a child’s life are crucial to their long-term development, and yet the Government remains unwilling to give the support that providers need to be able to offer affordable, quality childcare. Chronic underfunding has left us with a free entitlement scheme in crisis, one where many childcare providers are reliant on fundraising and the work of volunteers just to stay afloat.”

He added that if the situation continues, childcare providers could be forced to choose between increasing their fees or possibly closing down.

A Department for Education spokeswoman said: “This report has been totally overblown. It is nonsense to suggest that childcare has been underfunded. The cost of childcare is falling in real terms and we have increased annual funding for early education by over £1bn since 2010.

“We are doing more than any other government to tackle the cost of childcare, with a record amount of money going to support the youngest children.

“As a result of our plan for education more families than ever before are now eligible for free childcare.”

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