In the March 2023 Budget, the government announced the largest
and fastest expansion of free childcare on record, doubling
spending on the free entitlement to a funded childcare place in
just three years.
By September 2025, the programme will offer up to 30 hours a week
of funded term-time care to all children in working families from
the age of nine months until the start of school. Currently,
30-hour funded places are only available to 3- and 4-year-olds in
working families.
The new entitlements continue the trend towards prioritising
childcare support towards parents who work, rather than universal
services or targeted early education for low-income families.
Indeed, the poorest third of families will see
almost no direct benefit from the new entitlements.
Meanwhile, the share of disadvantaged 2-year-olds
eligible for a funded childcare place has fallen from nearly 40%
in 2015 to just over a quarter in 2022–23.
The scale and distribution of the new entitlements are among the
findings of IFS research analysing spending on the early years
and childcare over time, funded by the Nuffield Foundation as
part of the IFS’ annual series of updates on education spending.
The report also highlights the importance of getting the funding
rates right for these major new entitlements. At the start of
this month, the government increased funding rates for existing
childcare places; hourly rates are set to rise again in 2024. The
research finds that:
- Younger children have been prioritised for bigger funding
increases: 2-year-olds have seen their funding rate rise by a
third, from an average of £6.00 an hour to £7.95. Even after
providers’ rising costs are taken into account, this
will leave resources around £1 an hour higher in real terms than
their previous peak – and well above current market prices for
childcare.
- Meanwhile, funding for 3- and 4-year-olds has risen this
month by a lower (but still significant) 6%. But these rate rises
come on the back of a 17% fall in core
funding in the decade leading up to 2022–23. Even
with the rate increases, per-hour resources for 3- and
4-year-olds will still be 11% lower on this measure in 2024–25
than in 2012–13.
- Getting these funding rates – and the process for setting
them – right is crucial to ensure plans are deliverable and
maintain the quality of childcare. Once the new entitlements are
fully rolled out, the government could be paying for
80% of formal pre-school childcare in England.
Elaine Drayton, IFS Research Economist and an author of
the report, said: ‘Childcare providers have seen
significant increases in their costs over the last decade, but
funding rates have failed to keep pace. Core hourly funding for
3- and 4-year-olds fell by 17% in the decade leading up to
2022–23, once rising costs of provision are taken into account.
As the free entitlement expands, the government will be setting
the price for more and more of formal pre-school childcare hours
– and the risks to getting the funding rates wrong will get
bigger and bigger.’
Christine Farquharson, IFS Associate Director and an
author of the report, said: ‘Spending on the free
entitlement is now four times higher than it was two decades ago.
With the new childcare entitlements announced in the Budget, it’s
now set to double again over just three years. But these new
entitlements are another big step towards an early years system
focused on helping parents to work – with much less to say about
reducing inequalities in children’s development.’
Josh Hillman, Director of Education at the Nuffield
Foundation, commented: ‘This report demonstrates
the huge scale of government funding required to deliver the new
childcare entitlements. While the new money announced in the
Budget is welcome, it is disappointing to see the analysis
confirm a significant drop in the number of disadvantaged
2-year-olds that will be eligible for free childcare.’
ENDS
Notes to Editor
‘Early years spending update: Budget reforms and beyond’
is an IFS report by Elaine Drayton and Christine Farquharson,
part of the IFS’ annual series of updates on education spending
funded by the Nuffield Foundation.
It is strictly embargoed until Tuesday 26th September
2023. The embargoed report can
be downloaded here.
