Councils underspent £55m in early years funding which failed to reach providers

Katy Morton
Thursday, March 24, 2022

The majority of local authorities are not passing on money left over from Government funding to deliver childcare places to providers, according to an analysis of responses to Freedom of Information requests.

More than £55 million of Government money to deliver funded childcare places was unspent by 106 local education authorities in 2020/21, and just 12 have passed on some or all of the money to providers, a Freedom of Information (FOI) investigation by the National Day Nurseries Association (NDNA) has revealed.

Eighty per cent of local education authorities (LEAs) in England underspent their early years budget, which includes money for funded places and the Early Years Pupil Premium, in the last financial year.

A total of 136 out of 149 LEAs in England responded to the FOI, but only responses from 131 could be included in NDNA’s analysis as five were unclear or required further detail.

For this reason, the NDNA says the total underspend figure is likely to be higher. Moreover, many LEAs said they used some of their underspend to increase the provider base rate, but did not give details of how much of the underspend was used in this way and whether any amount was left to carry forward.

Of the 106 LEAs that reported an underspend, 15 had an underspend of more than £1 million each. When asked what they planned to do with the money, only 12 (9.1 per cent) said the underspends would be passed on to providers.

Hampshire is among those passing on its underspend to childcare providers. The LEA had an underspend of £1.083 million in 2020/21. The funding has been held to meet potential increased demand for places this financial year. The local authority has agreed on an ‘exceptional basis’ to support providers impacted by the pandemic.

Of those with an underspend of more than a £1 million, eight had also underspent their funding budgets by more than £1 million in one of the previous two years. This has been the picture for three LEAs: Islington, Hertfordshire and Surrey.

*these LEAs reported underspends of over £1m in 2019/20

** these LEAs reported underspends of over £1m in 2018/19 and 2019/20

#these LEAs reported underspends of over £1m only in 2018/2019

Source: NDNA

A total of 30 LEAs put their unspent money into their Dedicated Schools Grant reserves, while 24 said they had money ‘clawed back’ or ‘adjusted’ by the Department for Education (DfE). In some cases, this left councils with a deficit when previously they had surplus money. A further ten councils said they expected some or all of their unspent money to be clawed back.

A further 18 LEAs did not respond, gave unclear responses or said they did not hold the information.

Two-year-old places 

Of those LEAs with an underspend, 64 underspent the Government funding they were given to deliver two-year-old places for disadvantaged children. The underspend totalled £10.41 million. 

Underspend for three- and four-year-old places 

More LEAs underspent on three- and four-year-old funding than for other areas of their early years budget, with 67 per cent (76 councils) reporting an underspend, totalling £40 million. 


Thirty-two LEAs said they had overspent, totalling £8.4 million. Of these, 28 were receiving a Government funding rate of less than £5, 18 £4.50 or less and 12 received the lowest funding rate of £4.38.

The NDNA says the link between overspends and lower funding rates to deliver childcare places suggests the LEAs are not receiving sufficient funding.

Only Central Bedfordshire overspent its early years budget by more than £1 million in 2020/21.

A breakdown of the figures shows that 42 LEAs overspent on their two-year-old funding, while fewer reported an overspend for three- and four-year-old funding – 31 in total.

The NDNA says that given take-up of two-year-old funded places has fallen – only 62 per cent of eligible children took up a place last year, down from 69 per cent in 2020 – it is ‘worrying’ that LEAs are experiencing more overspends in two-year-old funding than other areas. 

Previous years’ data

Over three years, the NDNA has been carrying out its research into under- and overspends. The last financial year saw the lowest underspend at £55.2 million, compared with £62 million in 2019/20 and £63 million in 2018/19. Over three years, the overspend totals £180 million.

The NDNA has made a number of ‘urgent’ recommendations. They include:

  • The DfE should carry out a comprehensive review of how early education and childcare is funded, and reduce LEAs’ administrative burden.
  • The underspends and budget adjustments/clawback must be investigated.
  • The DfE should ringfence all early years block funding. All additional funding for early years should be ringfenced to ensure it is given to providers.
  • The DfE should investigate the cause of overspends in two-year-old funding.

Purnima Tanuku, chief executive of the National Day Nurseries Association, said, ‘The year covered by this investigation saw the full national lockdown for Covid-19 and some real challenges for early years providers. With this in mind, every penny of funding is needed to go to providers to keep them going.

‘However, we have seen tens of millions of pounds not reaching the frontline. This is outrageous and an insult to the early years sector at a time when they are most struggling to deliver high-quality early education and balance their books. 

‘This funding system is not fit for purpose and needs a fundamental review. Children, families and providers deserve a system that works for them and ensures support follows the child it is intended for all the way to the providers delivering their places.’

Tanuku added that all the new funding which was announced last year for 2022/23 must reach providers, which need to find an additional £12,600 average to
pay business rates and a significant increase in their wages bills from April.

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