Estimates day debate: childcare and early years spending by the Department for Education

On 8 March there will be an Estimates Day debate on spending of the Department for Education relating to childcare and early years.

The topic for the debate was proposed by the Backbench Business Committee, on application from Robin Walker MP, Chair of the Education Committee. On 15 December 2022, the Education Committee announced an inquiry into “childcare affordability and early years education”.

In the 2022/23 Supplementary Estimate, the Department for Education (DfE) is seeking to increase its Resource Departmental Expenditure Limit by £3.9 billion (+5.4%) compared to the 2022/23 Main Estimate, taking the budget from £71.9 billion to £75.8 billion. This increase is driven by a £4.0 billion increase required to cover the annual revaluation of the student loan book and its impairment charge.

At the Autumn Budget and Spending Review 2021, the Government said it would provide £170 million by 2024/25 to increase the hourly funding rate paid to early years providers. The day after the Budget, the then Minister, Will Quince, confirmed additional funding of £160 million in 2022/23, £180 million in 2023/24 and £170 million in 2024/25. The additional funding each year is based on a 2021/22 baseline and is not cumulative (ie funding in 2024/25 will be £10 million lower than in 2022/23). The DfE has said the funding levels reflect “cost pressures as well as anticipated changes in the number of eligible children”.

In December 2022, the Government announced it would provide an additional £20 million in 2023/24 on top of the £180 million announced at the 2021 Spending Review, to help meet the cost of increases in the National Living Wage.

Whether early years funding is high enough has been the subject of debate since well before the Covid-19 pandemic. The Institute for Fiscal Studies has said this is “is an extremely difficult question to answer…not least because there are different definitions of ‘high enough’.”

A DfE analysis of the finances of early years providers, published in April 2022 and based on data from the survey of childcare and early years providers 2021, found the mean income-to-cost-ratio (total weekly income divided by total weekly cost) for all early years providers was 1.25 in 2021 (1.35 for all providers excluding childminders). The median income-to-cost ratio (the middle observation when providers are ranked from lowest to highest) was 0.96, indicating that half of providers were around or below the breakeven point where total costs equal total income. It should be noted that the 2021 survey took place between March and July 2021 when early years providers were still experiencing some disruption as a result of the Covid-19 pandemic.

In its 2022 annual report on education spending in England, the IFS noted the “substantial boost” to early years funding provided at the 2021 Spending Review (see above) but said “higher than expected inflation is now set to undo recent gains.” The report suggested the prices faced by childcare providers have grown more quickly than those facing households or the economy as a whole and, as a result, funding will not keep up with increasing costs in the coming years.

There is a debate as to whether financial pressures in the early years sector are forcing providers to close and negatively affecting childcare sufficiency. The number of registered early years providers has fallen steadily since 2015 and there was a net overall decrease of around 5,410 providers between 31 August 2021 and 31 August 2022. The number of places offered by providers on the early years register has also declined, but not at the same rate as the number of providers.

Early data from Coram’s Childcare Survey 2023, published in January 2023, suggested over half of local authorities said the sustainability of childcare providers had been negatively impacted by the rising cost of energy (57%) and food (53%).

The Government has said the number of places offered by providers has “remained broadly stable since 2015” and local authorities are not currently reporting any sufficiency issues. It has added that, if a local authority raises concerns about sufficiency issues, the DfE would “support it with any specific requirements.”

Childcare costs vary widely depending on individual circumstances. This limits how informative national average childcare cost data can be. These considerations also apply when making international comparisons of childcare costs.

However, the Organisation for Economic Co-operation and Development (OECD) has suggested UK parents face some of the highest net childcare costs as a percentage of average wages. The IFS has also said “the cost of childcare in England is high compared with other countries and has risen quickly over time”.

The Department for Education’s annual survey of parents asks parents to rate the affordability of local childcare and how difficult they find it to meet their childcare costs. In 2021, around 42% of parents (with children aged 0-14) rated the affordability of local childcare as very or fairly good. Around 24% of parents with children aged 0-4 reported finding it difficult or very difficult to meet their childcare costs. 53% of non-working mothers with children aged 0-4 said they would prefer to go out to work if they could arrange “good quality childcare that was convenient, reliable and affordable”.

In its submission to the Treasury ahead of the Spring Budget 2023, the Confederation of British Industry (CBI) suggested the current childcare system is “exacerbating the cost-of-living crisis”. It also said the system is contributing to labour market shortages, dampening economic output, slowing down social mobility and contributing to gender inequality.

Concerns have been raised that some people may not be accessing all the support available to them. This has particularly been raised as an issue concerning Tax Free Childcare (TFC).

As a proportion of all families who were eligible for TFC in March 2022 and had qualifying childcare, the take-up rate in the UK was 30%. Across the 2021/22 financial year, 40% of eligible families used TFC.

The Nuffield Foundation has also highlighted that in the first three years of TFC, the government spent £385 million compared to the original forecast of £2.1 billion.

The Government has said “improving parents’ access to affordable childcare is a Government priority” and it is “exploring options” to support families.

In July 2022, the Government launched a consultation on proposals aimed, in part, at reducing the cost of childcare. The proposals included:

• Changing the mandatory staff to child ratio for two-year olds in early years settings from 1:4 to 1:5.
• Increasing flexibility for childminders, so they can care for more than the maximum of three children under the age of five “if they are caring for siblings of children they already care for, or if the childminder is caring for their own baby or child”.
• Making the Early Years Foundation Stage Statutory Framework (EYFS) explicit that “adequate supervision” means children “must be in sight and hearing of an adult” while they are eating or drinking.

The Government said the change to the ratio for two-year-olds could reduce childcare costs by up to £40 for a family paying £265 per week. However, some stakeholders questioned whether the changes would lead to savings for families.

The Government has not yet responded to the consultation, which closed on 16 September 2022.

The Government has also highlighted it is working to raise awareness of the childcare support available. In June 2022, it launched a campaign costing £1.2 million, though the Childcare Choices website, to increase awareness of government-funded support with childcare costs. The first campaign ran from 30 June to 31 August 2022, and the second went live on the 31 October 2022.