Inflation will erode funding for early years care, finds IFS

The fast pace of inflation will significantly erode funding for early years care in nurseries and childcare providers over the next three years, according to a report by the Institute for Fiscal Studies.

The IFS said funding for childcare places in England will in effect fall by 8% by 2024-25 as a result of inflation, with providers facing costs rising by 16% over that period, mainly as the result of higher wage bills.

Elaine Drayton, one of the authors of the IFS report, said governments had prioritised spending on early years provision over the past decade, with new childcare entitlements for disadvantaged two-year-olds and for three- and four-year-olds in working families, and expanding provision at a time when other public services were being cut.

“But early years providers are facing rapidly rising costs that are eroding the value of their budgets. Childcare providers’ costs had already been rising faster than economy-wide inflation over the last few years but they face an even steeper rise in the coming years,” Drayton said.

“That will leave government funding for the free childcare programme much lower than had been intended when the budget was last set in 2021.”

The result is that the significant increase in the 2021 spending review – up to £3.75bn a year until 2024-25, covering the universal entitlement to 15 hours a week childcare, rising to 30 hours for many working parents – will be undone by higher-than-expected inflation.

Neil Leitch, the chief executive of the Early Years Alliance, said: “We know that early years providers are deeply committed to providing high-quality education to our youngest children, as well as the childcare that many parents rely on – but this alone isn’t enough to pay the bills and keep the doors open.

“The fact is that the early years funding system in this country is broken and the way in which the government views and treats our vital sector needs an urgent rethink before it completely implodes.”

Kevin Courtney, the joint general secretary of the National Education Union, said his members were warning that nursery closures were inevitable “unless the government intervenes” and announced more financial support for the sector in next week’s budget.

Bridget Phillipson, the shadow education secretary, said the IFS’s analysis highlighted the need for a “new, modern childcare system” to be built.

“The falling value of childcare support means parents will face even higher bills or more nursery closures, all because the Conservatives crashed the economy,” Phillipson said.