Poorest children bearing brunt of deepening early years funding crisis, new research shows

New research has revealed how the early years funding shortfall – now an eye-watering two thirds of a billion pounds – is having a profound and negative impact on the poorest families in England.

The research, produced by independent research agency Ceeda, found almost one in five childcare providers (17%) in the most deprived areas of England anticipate closure in the next twelve months – over twice as many as those in the most affluent (8%). 

The report, which uniquely combines an in-depth analysis of provider’s opinions and financial information with government data, also revealed that the early years funding shortfall is increasing at an alarming rate, rising by almost £50 million in the last year to £662 million. 

The impact of the funding shortfall is being felt across the country with almost half of providers saying they are forced to make savings by cutting back on learning resources (43%). Nearly one in five said they have lowered the quality of food they give to children (19%). 

Many providers reported they had little choice but to pass on the shortfall in funding to the parents. One in five childcare providers now require private hours to be taken alongside the government’s flagship funded childcare offers (18%) – leading to additional costs that the most disadvantaged families may struggle to afford. 

Some providers are also limiting the number of funded places they offer, with over one in ten (12%) capping the places for disadvantaged two year olds and 15% capping the number of 30 hour funded places. 

Commenting on the new research, Neil Leitch, chief executive of the Early Years Alliance said: “How much bigger does the early years funding shortfall have to grow before the government acts? Thousands of providers have closed, many more are charging for things that were previously free and now we see the impact this is likely to have on the poorest children in the country.

“We’ve heard countless times from ministers about the importance of social mobility and yet the evidence is that their policies are having the opposite effect. This report is just the latest in a growing list of studies, including several commissioned by the Department for Education, revealing government childcare policy is failing, even on its own terms. 

“This is what a sector in crisis looks like. Providers are straining to deliver quality childcare on funding levels set in 2015, leaving them forced to choose between reducing quality and charging ever higher fees or closing their doors. There’s only one conclusion to draw from this: the government can no longer afford to underfund the early years. It must invest properly in its flagship childcare schemes and review the funding annually to make sure it stays in line with rising costs.” 

Dr Jo Verrill, managing director of Ceeda, said: 

“These findings tell an all too familiar story of rising costs and widening funding gaps. Statutory pay rises, increased pensions contributions and rising business rates are fuelling provider costs, whilst funding rates remain fixed. Childcare providers have little choice but to try a range of strategies to recoup or limit losses, from caps on funded places, to cuts in staffing levels. 

"Whilst a logical response to financial pressures, these actions have important consequences, particularly for those families least able to pay for early education.”

The CEEDA research is published during the Early Years Alliance Fair Future Funding action week, when dozens of MPs are visiting childcare providers in England to witness first-hand the impact of underfunding on the sector. For more information visit www.eyalliance.org.uk/actionweek 


Notes to editors

How this data was collected

Drawing on detailed income, expenditure and occupancy data, the spring About Early Years finance survey measured the cost of providing 603,510 hours of care and education, for 27,500 children in 356 private, voluntary and independent (PVI) childcare settings.

As of December 2018 there were a total of 24,183 nurseries and pre-schools and 38,045 childminders on the Ofsted Early Years Register, registered to provide care for the early years age group (children from birth to 31st August following their fifth birthday). 

The research sample encompassed 356 settings, including 86 childminders and 270 nursery and pre-school settings covering all types of provision from small voluntary run pre-schools to private nursery groups. Operators provided in-depth information on financial accounts, occupancy, staffing and payroll data, in addition to questions on operating policies and business confidence. Findings are weighted to the profile of the Ofsted Early Years Register to ensure representative analysis. The confidence interval for research findings is +/- 5.9 for nursery and pre-schools and +/- 10.6 for childminders at the 95% confidence level.


How the funding shortfall is calculated

  • Current funding levels are based on a cost analysis conducted in 2015 and used data from 2012 - 2013. They do not take into account provider outgoings which have increased dramatically in line with rises to the national minimum and living wages, pension contributions and business rate increases.
  • Based on delivery costs for children aged 2 to 4 years only and assuming take-up of funded places is in line with 2018/2019 trends, PVI childcare providers will face an estimated funding deficit of £455 million in 2019/2020. The deficit rises to an estimated £662 million when subsidies for younger age groups are taken into account.
  • The average cost to deliver one hour of early education and childcare for a two year old is now an estimated £7.22, set against an average funding rate of £5.27, leaving a 37% funding shortfall
  • The average cost to deliver one hour of early education and childcare for three and four year olds is now an estimated £5.36, set against an average funding rate of £4.46, leaving a 20% funding shortfall.

About Ceeda

  • Ceeda Research Limited is an independent research agency specialising in analysis of the early years education and childcare sector. Widely acknowledged as leading sector analysts, Ceeda’s work is widely referenced across the childcare sector, at Westminster, and in key publications such as the recent Social Mobility Commission’s State of the Nation 2018-2019 report. 

About the Early Years Alliance

  • The Early Years Alliance is the largest and most representative early years membership organisation in England. A registered educational charity, it also provides high-quality affordable childcare and education to support children and families in areas of deprivation throughout the country.
  • The Alliance represents 14,000 member settings and supports them to deliver care and learning to more than 800,000 families every year. We deliver family learning projects, offer information and advice, produce specialist publications, run acclaimed training programmes and campaign to influence early years policy and practice.
  • The Alliance website is www.eyalliance.org.uk