Plans to reduce the amount of early years funding that councils can retain could affect wider efforts to support families, the membership body for local authorities has warned.
The proportion of funding that local authorities can keep back from early years providers has decreased from 5% in 2024/25 to 4% in 2025/26, and is set to be lowered further to 3% in 2026/27 – meaning that, from April 2026, councils will need to pass through 97% of early years funding to settings.
However, in its autumn Budget 2025 submission, the Local Government Association (LGA) says that it is concerned that increasing the entitlements pass-through rate to 97% will “limit spending flexibility”, because “councils will not retain sufficient funding to support both early years settings and families, and manage the provider market”.
The submission also raises concerns around the rise in spending on children’s services, alongside overspend on special educational needs and disabilities (SEND) services, with the LGA estimating high-needs deficit will reach £5 billion this year.
The submission states: “The announcement that councils can continue to keep these deficits off their main balance sheets until 2028/29 is helpful […] But in the absence of a long-term solution, these deficits are still an existential threat for a number of councils.”
The LGA is calling on Chancellor Rachel Reeves to write off the SEND deficit as part of the wider SEND reform programme, which the government has delayed, and encourage ministers to work with councils to provide sustainable resources that meet rising demand to “give councils and schools the chance to focus on improving provision rather than firefighting finances”.
