Expansion of free childcare will do little to help the poorest third of families, according to the Institute for Fiscal Studies (IFS).
A report by the think tank examined the Government’s plans to double spending on the free entitlement to a funded childcare place within the next three years.
Announced in the March 2023 Budget, by September 2025 the programme will offer up to 30 hours a week of funded term-time care to all children in working families from the age of nine months until the start of school. Currently, 30-hour funded places are only available to three and four-year-olds in working families.
Prioritising working families
The IFS report Early years spending update: Budget reforms and beyond examines the scale and distribution of the new entitlements as well as analysing spending on the early years and childcare over time. The report was funded by the Nuffield Foundation as part of the IFS’ annual series of updates on education spending.
The report found the new entitlements continue the trend towards prioritising childcare support towards parents who work, rather than universal services or targeted early education for low-income families. It pointed out that the share of disadvantaged two-year-olds eligible for a funded childcare place has fallen from nearly 40% in 2015 to just over a quarter in 2022–23.
The findings echo those of previous studies. In May a study by the Joseph Rowntree Foundation concluded that free childcare hours ‘unfairly benefit higher earners’
Funding per hour per child
While the total amount of funding for the free entitlement is an important signal of the Government’s priorities and the total investment in the early years, for individual providers the metric that matters most is usually the amount of funding per hour they receive for each child in their care.
The IFS found that younger children have been prioritised for bigger funding increases: two-year-olds have seen their funding rate rise by a third, from an average of £6 an hour to £7.95.
Even after providers’ rising costs are taken into account, this will leave resources around £1 an hour higher in real terms than their previous peak – and well above current market prices for childcare.
Meanwhile, funding for three and four-year-olds has risen this month by a lower (but still significant) 6%. But these rate rises come on the back of a 17% fall in core funding in the decade leading up to 2022–23. Even with the rate increases, per-hour resources for three and four-year-olds will still be 11% lower on this measure in 2024–25 than in 2012–13.
The IFS said that getting these funding rates – and the process for setting them – right is crucial to ensure plans are deliverable and maintain the quality of childcare.
Inadequate funding rates
Elaine Drayton, IFS research economist and an author of the report, said: “Childcare providers have seen significant increases in their costs over the last decade, but funding rates have failed to keep pace. Core hourly funding for three and four-year-olds fell by 17% in the decade leading up to 2022–23, once rising costs of provision are taken into account. As the free entitlement expands, the Government will be setting the price for more and more of formal pre-school childcare hours – and the risks to getting the funding rates wrong will get bigger and bigger.”
Josh Hillman, director of education at the Nuffield Foundation, said: “This report demonstrates the huge scale of government funding required to deliver the new childcare entitlements. While the new money announced in the Budget is welcome, it is disappointing to see the analysis confirm a significant drop in the number of disadvantaged two-year-olds that will be eligible for free childcare.”
Poorer children will miss out
Neil Leitch, CEO of the Early Years Alliance, said: “There is a wealth of research showing that children from poorer backgrounds benefit the most from quality early education and care – and yet, as this report rightly highlights, the upcoming 30-hour expansion is set to exclude these children almost entirely.
“For all ministers’ talk of the need to ‘close the gap’ between disadvantaged children and their peers as early as possible, the government has made it very clear that this policy was created to encourage parents to return to work, rather than ensuring that all children can access a high-quality early education.
“Let’s be clear: early years provision is more than just childcare. It is vital education, delivered at the most crucial period of a child’s learning and development.
“In no other area of education would we accept the idea of children’s fundamental access to education being determined by their parents’ earnings – so why is it acceptable in the early years?”
