Just 12 per cent of councils said they later passed any of their leftover budget to providers to help with underfunding, finds the research carried out by the National Day Nurseries Association (NDNA).
The rest of the money was either put into reserves or used to offset other deficits within the Designated Schools Grant (DSG).
In total, 104 local authorities reported an underspend out of the 137 that responded to the NDNA’s Freedom of Information (FOI) request, equivalent to 76 per cent of councils. Almost a quarter (25 councils) reported underspends of more than £1m each.
Essex reported the largest underspend with £4.9m left over at the end of the year 2022-23. It said it had passed on some money to providers.
NDNA put out a Freedom of Information (FOI) request to 150 local education authorities in December, regarding whether they had an underspend or an overspend, once 2022-23 accounts had been finalised.
They also asked about DfE adjustments to their allocations and what percentage of their total entitlement they passed through to providers. We received responses from 137 councils although some had not answered all the questions.
Fewer councils reported overspends in 2022-23. There were 22 councils that reported overspends amounting to £7.4m. This compares to £23.1m in 2021-22.
Where councils overspend, they must recover funding from future years meaning funding rates to providers can be lower.
‘It is extremely worrying to see that the underspends are now at record highs when we have also seen record numbers of nursery closures.’
Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said, ‘These shocking findings really emphasise that the current way of funding early education and care places is not fit for purpose.
‘We have been warning about these complexities for the last five years when we have been publishing this data. It is extremely worrying to see that the underspends are now at record highs when we have also seen record numbers of nursery closures.
‘It’s clear that councils are under pressure as almost half of this money has been put into reserves, with most of the rest used to offset budget deficits particularly within the high needs block. Only 12 per cent of councils passed any of this left-over funding to providers, meaning funding is just not reaching those who are working with our youngest children.
‘However, providers are under even more pressure with the vast majority telling us that current funding rates do not cover their costs. NDNA has been calling for the DfE to ringfence this money which is meant for providers to deliver high quality early education and care to all children who need it. The current situation means that any left-over funds are used to bolster other areas within the schools grant which is unfair. This practice must end.’
How funding is worked out
The Department for Education (DfE) works out a funding formula for each local authority and gives them a lump sum depending on how many two, three and four-year-olds are expected to take up funded places in their borough. Councils are entitled to top slice up to 5 per cent of their allocation for administration, support to the sector and to carry out sufficiency duties.
The average pass-through rate was reported to be 96.34 per cent across the 130 councils who responded to that question. Of these, 127 said they passed through 95 per cent or above, with 44 saying they passed through exactly 95 per cent.
