Chancellor pledges to guarantee funding rates to nurseries for childcare offer

The Government will guarantee funding rates to early years providers for the next two years to deliver its “landmark” childcare expansion offer, the Chancellor has said.

Jeremy Hunt said the extension of Government-funded childcare provision will mean an “extra 60,000 parents enter the workforce in the next four years”.

With under a month to go until the first stage of the rollout, Mr Hunt said: “I am guaranteeing the rates that will be paid to childcare providers to deliver our landmark offer for children over nine months old for the next two years.”

Delivering his Budget speech, the Chancellor added: “That is more people in work. More jobs. Sticking to our plan in a long-term budget for growth.”

It comes after early years leaders called for more investment in the sector to help them meet the increased demand for funded places under the offer.

The Chancellor announced at the Budget last year that eligible families of children as young as nine months old would be able to claim 30 hours of free childcare a week by 2025.

As part of a staggered rollout of the policy, working parents of two-year-olds will be able to access 15 hours of free childcare from next month.

This will be extended to working parents of all children older than nine months from September before the full rollout a year later.

The hourly rate childcare providers are paid to deliver the free hours offers will increase “in line with the metric used at Spring Budget 2023” for the next two years, the Treasury said.

It added: “This reflects that workforce costs are the most significant costs for childcare providers and represents an estimated additional £500 million of investment over two years.”

Early years leaders warned last month that childcare providers will struggle to deliver enough places to meet demand for the new offer, while some settings will be forced to increase fees because of funding challenges.

Announcing the measures to support the childcare sector in his March statement on Wednesday, Mr Hunt said he believed Education Secretary Gillian Keegan was doing an “effing good job”.

Neil Leitch, chief executive of the Early Years Alliance (EYA), welcomed the Government’s announcement but he said the policy does not address the “inadequate funding baseline from which providers are forced to operate”.

Mr Leitch said: “We know that the early years is facing its most challenging time in decades. Not only have years of underfunding wreaked havoc on the sector – prompting both a surge in setting closures and the worst staffing crisis in years – but the sector is just weeks away from the biggest expansion in early entitlement hours, with many settings warning that they do not have sufficient funding, capacity or space to meet the likely surge in demand.

“As such, while today is certainly a positive starting point, much more support – including significant long-term funding and a comprehensive workforce strategy – is crucial if nurseries, pre-schools and childminders are to be to able to sustainably deliver both existing and upcoming entitlement offers.

“With many settings already on the brink of closure, simply maintaining the status quo is not an option.”

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said: “In the current financial climate, we welcome the fact that the Chancellor has listened and committed to additional funding indexed to rising costs for 2025/26 and the year after.

“We hope the Government continues to listen to the sector about the challenges providers are facing.”

Ms Tanuku added: “We would have liked to have seen some immediate support to providers with their current three and four-year-old funding. Our recent survey showed that 83% say funding doesn’t cover their costs and 73% expect to make a loss overall or just break even.

“The Government must continue to work with the sector to ensure parents and families are able to access the expanded offer and providers can deliver this sustainably.

“It’s very disappointing that the Chancellor didn’t extend the business rates discount to the childcare sector where it is desperately needed.”

Ellen Broome, managing director of Coram Family and Childcare charity, said: “We welcome the Chancellor’s commitment in today’s Budget to guarantee rates being paid to providers over the next two years.

“We have been vocal in our concerns that the sector will struggle to meet parents’ needs because of the gap between funding rates and the real cost of delivery.

“This is a good first step but the funding is only being put in place for the next two financial years – we call on all parties to support this move and to commit to increasing funding beyond that period.

“This would give parents, children and employers long-term certainty for an affordable and sustainable childcare system.”

She added: “The Chancellor’s announcement does not address the existing, systemic challenges – including ensuring high-quality affordable childcare is available to lower-income families or addressing the recruitment and retention crisis in the childcare sector.”

During his Budget, the Chancellor also announced that £105 million would be invested over the next four years to build 15 new special free schools.

The Treasury said the move will create more than 2,000 additional places for children with special educational needs and disabilities (Send) across England.