Spending Review: Extra £350m to deliver free childcare expansion

In his Autumn Statement and Spending Review Chancellor George Osborne said the money would be used to increase the average hourly rate paid to childcare providers. He also announced that £50m in capital funding would be allocated to create additional places.

Further details of how the money will be allocated were revealed by Education Secretary Nicky Morgan during a debate in the House of Commons on the Childcare Bill, which will bring in the additional free hour entitlement.

She said that across the board rates will be £4.88 an hour for three- and four-year-olds and £5.39 for two-year-olds, adding that this amounted to an increase of 30p an hour.

A further review of early years funding will take place next year as part of a wider review into education funding.

She said: “With this increase we have set a level of funding that providers need to provide high-quality childcare, while at the same time providing good value to the taxpayer.”

Neil Leitch, chief executive of the Pre-school Learning Alliance said the extra funding was “an important first step towards addressing this historic issue”.

However, he is concerned that providers may miss out through uneven distribution by councils, and that the new rate includes early years pupil premium money.

“Given that this is currently additional funding available only to children from disadvantaged backgrounds who meet very specific criteria, we are unclear as to why this money has been factored into the general three- and four-year-old rate,” Leitch said.

Leitch also wants to see more sustainable funding settlements in future years that cover long-term costs such as “rent increases, pensions contributions and the national living wage”.

Purnima Tanuku, chief executive of the National Day Nurseries Association, also called for longer term investment in the sector.

She said: “This uplift in funding must not stay still. Nurseries are under increasing business pressures. It must continue to increase to keep pace with the financial pressures of the sector, including the introduction of the national living wage in April. It cannot be a one-off.”

The doubling of free childcare will come into effect for three- to four-year-olds from September 2017, with a trial of arrangements taking place in 2016 involving 5,000 children.

The Chancellor has also announced new restrictions to tax free childcare. It will only be available to those working 16 hours or more a week, double the original minimum requirement. In addition the free entitlement now has an upper income limit per parent of £100,000.

Leitch backed the decision to place an upper income limit but is concerned about the doubling of the minimum working hour requirement. He said: “There's a real danger here that those schemes that were initially purported to help will suddenly find themselves without much-needed support with the cost of childcare."

Imelda Redmond, chief executive of 4Children, fears the new minimum working hours requirement may put off parents that want to return to work on reduced hours.

She said: “With the threshold for eligibility doubling to 16 working hours a week we must make sure that parents wanting to get back into work gradually are not discouraged from doing so.”