Higher-than-expected inflation as well as soaring costs for areas like energy bills are also set to hit nurseries.

These rising costs to providers are likely to filter through to higher fees for parents who already pay the highest costs of any developed country for childcare fees for those aged two and under, according to data from the OECD.

In the recent Autumn Statement, there was no mention of any extra funding for the early years sector, which is facing severe financial challenges. Colleges and universities were also left out of the statement.

Funding was announced for schools in England and an extra £2.3bn was promised taking school spending per pupil in 2024 back to the levels seen in 2010.

However, according to the Institute of Fiscal Studies (IFS), as there has been no overall real-terms growth in 14 years, this means there is a significant squeeze on school resources.

In 2021, education spending represented around 4.6% of national income. This is the same level as seen in the early 2000s, mid 1980s, and late 1960s. It is lower than it was in the mid 1970s and late 2000s, when it was over 5% of national income.

Early years providers face big costs

The report from the IFS warned that in the early sector, funding settlements have long lagged behind increases in free entitlements. As a result of this, and because of the impact of the Coronavirus pandemic, many providers have closed.

Recent data from Ofsted has also shown that 5,400 providers have shut down in the last 12 months. The number fell to 65,600 in the year to 31 August 2022.

The IFS said rising costs mean that despite a £170m boost to funding, total government spending on the free early years entitlement, available to the majority of three-year-olds and some two-year-olds, will be 9% less in 2024 compared to 2021.

It stated “virtually all of this squeeze is yet to be felt” suggesting that things will become tighter financially for providers, and parents.

Yet already some parents are paying up to 65% of their wages on fees as providers face a cut of 8% to their budgets by 2024.

However, the report does highlight the boost in funding this sector has received. Last year spending on the free entitlement to a funded childcare place was around £4bn, more than double its 2009 level. Spending per hour also increased by 28% between 2009 and 2021.

The majority of the new money has been driven by the introduction of free hours for three- and four-year-olds and free hours for some two-year olds.

The IFS wrote in its report: “In early years education and childcare, funding settlements have long lagged behind increases in free entitlements and, exacerbated by the effects of the pandemic, many providers have shut.

“Facing similar challenges to those described for schools but without an equivalent boost from the Autumn Statement, the sector is likely to be increasingly squeezed.”

‘Education starts well before, and goes on long after, the school gates’

Neil Leitch, chief executive of the Early Years Alliance, said: “The government has argued that without a plan for education, there is no plan for economic growth – but unless ministers finally wake up to the fact that education starts well before, and goes on long after, the school gates, any future policy is doomed to fail.

“As the IFS rightly highlights, sky-high inflation rates and huge increases in the national living and minimum wages are putting unsustainable pressure on an already-fragile early years sector. Add to this the impact of rising energy costs and the ongoing severe staffing crisis, and it’s difficult to see how the government can possibly justify its complete lack of action over our vital sector.

“We want all children to have access to a high-quality early education, and we want every parent who needs it to have access to affordable, accessible childcare – but unless the government starts investing what’s needed, we will continue to see prices rise and places lost.

“Enough is enough. The government simply must commit to adequate long-term early years investment, and it must do so now. Simply ignoring this problem is not going to make it go away.”

Childcare should be classed as ‘necessary infrastructure’

A group of cross-party MPs, led by the Labour MP Stella Creasy, has proposed an amendment to the Levelling up and Regeneration Bill which would see childcare as an infrastructure, along with schools, GPs and public transport.

If successful, when building new homes developers would need to make sure there are sufficient childcare services in place. Local authorities would also be able to use infrastructure funds for creating affordable, good quality childcare settings, for children up to the age of 11.

Joeli Brearley, the chief executive of the campaign Pregnant then Screwed, is calling on parents to email their MPs, and has a template letter to use, ahead of the bill going to its final stage tomorrow.