Free childcare funding gap exceeds £200m

By Derren Hayes

| 12 November 2014

Early years providers face a funding shortfall of more than £200m annually to deliver the government's flagship free childcare policy, a study suggests.

Under the government scheme, children can receive 15 hours of free childcare. Image: David McCullough

Research published today by the Pre-school Learning Alliance shows the rate paid by local authorities to childcare providers for delivering free places for pre-school children is on average around 20 per cent lower than the costs incurred for doing so.

The figures show that one hour of free childcare for three- and four-year-olds cost providers on average £4.53 to deliver, 65p per hour more than the average amount paid by local authorities for providing the place. This put the funding gap at 17 per cent nationally and 20 per cent in London, although it rose to 21 per cent when factoring in unpaid staff contributions.

The average hourly cost of providing care for two-year-olds was £5.97, a funding shortfall of 78p per hour (15 per cent) when compared with the amount paid by local authorities. Again, the gap rose to 17 per cent in London, while unpaid staff contribution saw the shortfall rise to 18 per cent (91p/hour).

When extrapolated across the country, the annual funding shortfall for providing places for two-year-olds (£29m) and three- and four-year-olds (£177m) results in a total deficit of £206m.

The alliance study tracked the costs for the delivery of 186,712 hours of early years education and childcare for 5,635 funded and non-funded children in 100 early years settings from 23 June to 4 July. It also collected information on the rate paid by 126 of England’s 152 local authorities.

Under the free childcare programme, all three- and four-year-olds are eligible to receive 15 hours of government-funded care, along with two-year-olds from the 40 per cent most deprived families. However, the study was undertaken before the free entitlement for two-year-olds was expanded in September this year from the initial 20 per cent most deprived children.

The alliance said the findings reveal the extent of underfunding of the free entitlement offer.

Neil Leitch, chief executive of the alliance, said: “For every four children that access a government-funded place, providers have to fund a fifth out of their own pocket. This is clearly not sustainable.

“Chronic underfunding has left us with a free entitlement scheme in crisis, one where many childcare providers are reliant on fundraising and the work of volunteers just to stay afloat. 

“If this continues, childcare providers may be forced to choose between increasing fees or facing possible closure.”

Just last week, Liz Green, deputy chair of the Local Government Association’s (LGA) children and young people board, told a House of Lords committee on affordable childcare that some councils are not receiving sufficient funding to deliver the free entitlements.

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