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Research reveals £500m funding shortfall in early years sector

By Rachel Lawler

Child playing
The early years sector is facing a funding shortfall of £500 million each year, according to data from independent research agency Ceeda.
Ceeda has used data from 291 providers to estimate the average cost of delivering an hour of quality care and education for two-year-olds and three- and four-year-olds.
It estimates that the average cost of care for two-year-olds is £6.90 an hour to deliver – 32% more than the current average funding rate paid to PVI providers.
Accurate hourly costs
An hour of quality care and education for three- and four-year-olds is estimated to cost £5.08 an hour to deliver – 17% more than the average rate paid to providers.
As  a result, Ceeda has calculated that there is a total funding shortfall of £370 million across the various funded childcare offers available to parents, even with additional funds available to providers such as the Early Year Pupil Premium, SEN inclusion funding and Disability Access Funding.
Total annual shortfall
However, Ceeda’s research also revealed that the majority of early years providers use the income from places for three- and four-year-olds to cross-subsidise losses made on places for younger children. With this factored in, Ceeda belives that the total annual shortfall for all care delivered by PVI settings is £536 million.
These findings follow a recent report from the Treasury Select Committee, which criticised the government for using “misleading” funding figures and called for providers to be paid “a higher hourly rate”.
Justified concerns
Neil Leitch, chief executive of the Alliance, commented: “Time and time again, we have told the government that there simply isn’t enough money in the system and time and time again, they have denied that there is any problem – but these independent figures prove that the childcare sector’s concerns are completely justified.
“So much of the government’s rhetoric around ‘free’ childcare has been about helping working families – but this research makes clear that its current childcare policy is in fact likely to have the opposite effect. 
"With the recent introduction of the 30 hours, things are only going to get more difficult as nurseries, pre-schools and childminders across the country struggle to close a growing funding gap – and this is inevitably going to have an impact on parents, as providers are forced to ramp up fees or limit free entitlement places to stay afloat. Worst still, week after week, we are hearing reports of settings being forced to close their doors as a result of the government’s unwillingness to acknowledge and address the long-running issue of underfunding.
“It doesn’t have to be like this – but ministers needs will first have to admit that they have got this policy wrong. It’s clear that the government needs to look again at the way it funds the early years sector, and that to do this it needs to gain a proper understanding of how providers actually operate on a day-to-day basis. Pushing blindly ahead with promises of ‘free childcare’ when there is so much evidence that current policies are unworkable in practice is simply not sustainable.”
Priced out
Dr Jo Verrill, managing director at Ceeda, added: “A policy introduced to help 390,000 families therefore risks increasing costs for over 900,000 who also rely on childcare providers to care for and educate their children and allow them to work – not to mention those parents and carers who are already priced out of formal childcare services.”
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