Budget 2023: Big funding questions hang over Chancellor's 'landmark' childcare reform pledge

Jeremy Hunt confirmed the expansion of free childcare for working parents of one-and two-year-olds to 30 hours, to be phased in ‘for every single child over the age of nine months’.

Delivering his budget speech today, the Chancellor said, ‘Today I want to address an issue in our education system that is bad for children and damaging for the economy. It's an issue that starts even before a child enters the gates of a school. Today I want to reform our childcare system.

'We have one of the most expensive systems in the world. Almost half of nonworking mothers say they would prefer to work if they could arrange suitable childcare.'

He said that today's offer would 'complete the landmark reform' of childcare for three-and four-year-olds introduced by the Conservatives in 2010.

Hunt said that the 30 hour offer will eventually start from the end of maternity or paternity leave and will be worth on average £6,500 every year for a family with a two-year-old child using 35 hours of childcare every week, and reduces their childcare costs by nearly 60 per cent.

He said the policy would be ‘introduced in stages to ensure enough supply’ starting with 15 hours for two-year-olds in 2024.

In his speech the Chancellor also pledged an increase of £204m for the current early years entitlements, but experts have pointed out this is just a tenth of the £2 billion funding shortfall estimated by the Department for Education in 2021.

How will funding be impacted?

However, there are no details as yet as to how the Government intends to fund the 30-hour expansion, and crucially how much providers will receive for the funding rate.

Christine Farquharson, senior research economist at the Institute for Fiscal Studies said, ‘For such a huge reform to the early years system in England, today’s Budget gave us remarkably little detail about the one thing that will really matter: the funding rate that providers will receive. 

‘Even under current patterns of childcare use, expanding the 30-hour offer to almost all pre-schoolers in working families will put Whitehall in charge of the price of 80% of childcare hours delivered in England. That raises the stakes for getting the funding rate right, with the potential for huge damage to the quality and availability of childcare if the government gets it wrong.’

June O'Sullivan, CEO of the London Early Years Foundation (LEYF), which runs more than 40 nurseries, said, ‘While we welcome the Chancellor’s decision to finally bring the Early Years sector to the forefront, the extra funding of £200m for childcare providers only covers approximately 10 per cent of the £2bn shortfall from the DfE's own data in 2021. ‘This will be significantly higher now given increased costs since the current government subsidy has not kept up with spiralling wages and inflation.’ 

The Early Years Alliance said the policy raised ‘serious questions’ about how the policy would be funded.

Commenting, Neil Leitch, CEO of the Early Years Alliance, said, ‘While the Chancellor claims to be building a “childcare system comparable to the best”, the news that early years settings will only receive an initial increase in funding of £204m for the three- and four-year-olds completely flies in the face of this rhetoric. 

‘With the shortfall for current two-, three- and four-year-old offer estimated at around £1.8bn based on government's own figures, the additional funding announced today is highly unlikely to match what's needed to put providers on a steady footing, and raises serious questions about the government's entire approach to costing this policy.

‘We know from bitter experience that expansions of so-called “free childcare” without adequate investment are a recipe from utter disaster – and given that many providers rely on fees from younger children to make up for current funding shortfalls, the impact on the sector if the government gets this wrong cannot be underestimated.'

Purnima Tanuku, chief executive of the National Day Nurseries Association, said, 'Putting childcare at the forefront of the political agenda at last is really welcome, as is any support for parents to help with the cost of childcare.

'Following the Chancellor’s announcement of 30 hours of childcare for all children of working parents under three, it will take a huge amount of careful planning to ensure the policy will work.

'Firstly we will need to see if the uplift in funding for providers promised from September this year is enough to cover all providers increasing costs and stabilise the early years sector which is currently in crisis. We need to see how this will translate into rates paid to providers and halt the high numbers of nursery and childminder businesses closing.'

Supply – will there be enough places for parents?

The Chancellor has said that the extension to 30 hours will be phased in, starting with 15 hours for two-year-olds in April 2024.

It will be extended in September 2024 to 15 hours for working parents of all children aged nine months and above.

In September 2025 all working parents of children under five will be eligible for 30 hours of funded childcare.

Leitch also said that it was unclear how the Government intended to ensure there would be sufficient supply of childcare places to expand the offer for one-and two-year olds to meet the demand for early years places.

‘At a time when settings are closing at record levels and early educators are leaving the sector in their droves, unless the proper infrastructure is put in place by the time the extended offers are rolled out, many parents of younger children expecting funded places to be readily available to them are likely to be left sorely disappointed – and the token offer to new childminders announced today is likely to do little to change this.’

He also pointed out that there had been nothing about the importance of high-quality childcare in the speech.

‘Ultimately what matters is how what was promised to parents today is implemented in practice. From what has been announced so far, we are far from convinced.’

Beatrice Merrick, chief executive of Early Education, said, ‘The Chancellor’s announcement of extra money for early education and childcare is welcome, but falls far short of what is needed. £204m to increase the current entitlements is about a tenth of what the DfE’s figures suggest is needed to fully cover costs. 

‘Extending entitlements for working parents for children from 9 months old will provide much needed financial support for working parents, but if the hourly rate is as underfunded as the current two-year-old rate, it will not be possible to offer sufficient high quality provision – and quality is paramount for babies and very young children.’

‘Without a funding increase, the current recruitment and retention crisis cannot be addressed.’ 

Courteney Donaldson, managing director, Childcare & Education, Christie & Co, ‘Increased funding in the education sector, and early years specifically, has been long-anticipated, following years of lobbying, so it’s encouraging that the Chancellor has reported that funding for nurseries will rise in the next few years, and that there will be a boost to the financial support received by parents of children aged from nine-months.

'However, both reforms will need to be accompanied by a clear strategy detailing how this funding is to be deployed before it can be understood whether or not costs allocated will meet the rising costs the sector is still facing and whether said funding is sufficient for childcare settings to be sustainable.’

Childcare software provider Famly warned that without enough money for providers to deliver the entitlement for one and two-year-olds, it could lead to the closure of all nurseries.

Matt Arnerich, director of brand and communications, said, ‘At Famly we are seeing more of our nursery partners close down every week than ever before, simply because it is becoming unsustainable for them to keep their doors open.

‘Our providers were already seeing and overwhelming number of requests from parents yesterday when the extension of subsidised childcare was floated. Now that it is official, we can only imagine the admin burden this will cause – a problem we’re already trying to solve. We only hope it will be worth it.’

Focus on working parents leaves out disadvantaged children

Sullivan added that disadvantaged children who most need support are excluded from the extension of the current 30 hours childcare offer, which only includes working parents.

‘Unfortunately, given the focus of the additional hours on working families alone, we expect this will have an adverse impact on the disadvantaged children and families who most need the support – thereby increasing the attainment gap that already exists of over 4.5 months between children and their peers from more disadvantaged backgrounds when they start primary school,’ she said.

Dr Kerris Cooper, senior researcher at the Education Policy Institute, said, 'This targeted focus on working families leaves many disadvantaged children, who would likely benefit the most from high quality early education, behind. Our own research has shown that around 40 per cent of the GCSE attainment gap between disadvantaged children and their peers is established by age five. If we want to address these inequalities there needs to be a well-funded, high-quality offer for disadvantaged young children too, so that they are not left further behind as working families gain greater access to early education. 

'The quality of early years provision must remain a priority for policymakers. We welcome the increase to the funding rate for free entitlement hours, it is vital that the funding government provides is adequate and does not leave providers having to continue to make up any shortfall in funding. Especially with the introduction of additional free entitlement hours, any funding shortfall risks worsening the staffing crisis the early years sector is currently facing, further undermining quality provision for children.'

Sir Peter Lampl, founder and chairman of the Sutton Trust and chairman of the Education Endowment Foundation, said, ‘While many families will benefit from extending funded childcare for one- and two-year-olds, investing in this expansion without addressing the issues with eligibility means that inequalities will widen. As things stand, most of the country’s lowest-income families are shut out of the entitlement to 30 hours of funded provision at age three to four. 

‘While increased funding for early years providers is welcome and long overdue, it is unlikely to be sufficient for provision to be expanded. 

‘Our research shows that early years education is most beneficial for children from less well-off families and so the focus should be on those in greatest need and most likely to benefit.’