‘At least' £70mn of early years funding being left unspent by councils

Underspent funding, which had been earmarked to fund childcare places for two- to four-year-olds under the government's free entitlement schemes, is instead being used to bolster council reserves or offset school budget deficits in most cases.

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Just one in eight councils say they pass on the left-over money to childcare providers to help meet costs.

The research has been carried out by the National Day Nurseries Association (NDNA) based on Freedom of information responses from 137 councils for the 2022/23 financial year.

Of those responding, 104 are reporting an underspend.

The area with the largest underspend is Essex, which had £4.9mn left over at the end of the year.

Birmingham’s underspend is £4mn, while in Hertfordshire the figure is £2.4mn.

A total of 25 councils are reporting underspends of at least £1mn, including Liverpool, Wiltshire, Ealing, Hampshire and Manchester.

All but one local authority in the North East of England had underspend, with only South Tyneside overspending. None of those in this region, who responded to the NDNA’s request for information, had passed unspent funding to providers.

Council underspending has increased over the last two years, the NDNA has also found.  

Its investigation in 2022 found that at least £55mn of funding was being left unspent.

In our recent investigation, 25 / 137 councils reported underspends of £1m+.

Essex reported the largest underspend with £4.9m at the end of the year 2022-23.

Underspends are now at record highs when we have also seen record numbers of nursery closures.https://t.co/sYKAL22PKp pic.twitter.com/KU6TcYa9lv

— NDNA (@NDNAtalk) June 12, 2024

Councils are allocated funding depending on how many two- to four-year-olds are expected to take up funded places. They are entitled to “top slice” up to five per cent for administration and to support their local early years sector, says the NDNA.

Its chief executive Purnima Tanuku said the current funding regime “is not fit for purpose”.

“The system is too complex for parents, providers and local authorities," she said. "It is the children who lose out when funding doesn’t reach the front line.

“We have been warning about these complexities for the last five years when we have been publishing this data. It is extremely worrying to see that the underspends are now at record highs when we have also seen record numbers of nursery closures.”

The NDNA is calling on the government to ringfence early years money for providers so councils cannot use unspent money on other areas of education or to increase their reserves.  

“We want to see all early education and care funding for families come into a single account which parents can use with their provider of choice,” Tanuku added.

“This will simplify the model for everyone, reduce unnecessary admin costs and ensure funding follows the child.”