The Institute for Public Policy Research (IPPR) has calculated that plans to double the current free entitlement for three- and four-year-olds will cost £1.6bn in its first full year (2017/18). The government’s costing of the policy is £365m.
The IPPR states that government is likely to make savings of more than £200m from the welfare budget as a result of the expansion and an increase in tax receipts from mothers entering work, but will still face an overall shortfall of £1bn.
The predicted funding gap comes just days after the Department for Education said it is "unable to understand" the true cost of delivering the free entitlement despite more than 2,000 responses from the sector to the first stage of its review into the cost of childcare.
The IPPR report states that the £1bn shortfall will "exacerbate existing problems in the childcare market, and is likely to create new ones".
"The government’s drastic underfunding gives rise to concerns that the hourly rates that it will give to providers to deliver this care will be too low, resulting in falling quality, poorer outcomes for children and less choice for parents as the market shrinks."
The report calls on the government to set aside additional funding for the policy.
“We are concerned that the low costing for this policy will lead the government to change the nature of provision to fit the price tag,” the report states.
It predicts this could lead to relaxing the staff-to-child ratios, and opening up the market to allow cheaper, unregulated providers, to deliver it.
Giselle Cory, senior research fellow at IPPR and report author, said: “The government should be applauded for its commitment to additional free childcare hours, but the drastic underfunding of the policy calls into question whether it can be delivered without driving down quality and choice.
“At a time when parents desperately need high-quality care for their children, it is clear the current system is creaking at the seams even before it tries to cope with delivering extra free hours with less than a quarter of the cash we believe it requires.
“The government must prioritise properly funded childcare provision to meet demand, and ensure that standards do not fall."
