Early years funding in England

A high quality early years education improves the lives of children, has a positive impact on their future educational attainment and contributes towards social equality.

Funding streams

Early years provision in England is a complex patchwork of different types of providers, financed by a variety of funding streams. 

This mixed market of provision includes private, voluntary or independent (PVI) settings, maintained nurseries, primary schools, children’s centres and childminders. 

The cost of early years provision is borne partly by parents and partly by Government, through a combination of demand-side and supply-side subsidies.

Government subsidies for early years provision in England consist of both supply-side funding (enabling free entitlement) and demand-side funding (childcare elements of working tax credit and universal credit; employer childcare vouchers and tax-free childcare).

Local authority funding

The amount of money that local authorities receive is based on a formula that combines a basic hourly rate with an additional needs factor. The additional needs factor is dependent on, among other things: the number of children with free school meals eligibility; whether children have English as their first language; and whether children are in receipt of the Disability Living Allowance. The basic rate and the additional needs factor are combined and then multiplied by an area cost adjustment to consider the differing costs faced by providers around the country. 

Local authorities are legally responsible for ensuring that every child that is eligible for the 15 and 30-hours free childcare entitlement can access a place.  L

ocal authorities receive the funding from central Government to provide these places, and in turn, pass the funding they receive on to the front-line providers of childcare services.

Nursery crisis

However, the current levels of funding as they stand are not fit for purpose. 95% of nurseries say the government’s funding does not cover their costs and 85% are operating at a loss or breaking even, according to the National Day Nurseries Association (NDNA). And our own analysis is showing many MNS remain in a precarious position due to issues with the current funding system. 

The latest government figures show in England there was a decline of more than 300 nurseries between July 2020 and July 2021 and official data from Ofsted shows nurseries are closing at a higher rate in poor and disadvantaged neighbourhoods. 

The NEU believes that funding for early years should be at a level sufficient to allow all providers to deliver high quality care, which in turn produces a positive experience and good outcomes for children. 

Young children in nursery school

Save maintained nursery schools

Maintained nursery schools (MNS) are under threat of closure due to chronic underfunding by the Government.

Save maintained nursery schools
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