Nurseries squeezed as funding falls 22% behind 2017 levels, IFS finds
Nurseries squeezed as funding falls 22% behind 2017 levels, IFS finds
Early years providers in England are facing a deepening financial crisis, with new research from the Institute for Fiscal Studies (IFS) revealing that funding for three- and four-year-old places is worth 22% less in real terms than it was in 2017 — the year the government's 30-hours childcare policy first rolled out nationally. The findings, drawn from the IFS annual report on education spending in England, paint a stark picture of a sector stretched to breaking point at precisely the moment demand is surging.
Despite government claims of record investment in funded childcare places, the money reaching providers has failed to keep pace with the actual cost of delivering care. Funding rates for three- and four-year-olds have remained flat in real terms since 2024, producing an effective cut of 4% in the last year alone.
A sector paying the price of rising costs
The main problem is a mismatch between what providers receive and what they must spend. Employer costs — including the national minimum wage, National Insurance contributions, and pension obligations — have risen by 55% since 2017, far outstripping economy-wide inflation of 35% over the same period. For two-year-olds, the picture is slightly better — funding per hour is 12% higher than its 2017 level.
The IFS report also raises concerns about supply. While over 90% of parents approved for funded entitlements have managed to secure a place, there are signs of growing pressure in parts of the country — particularly in London — where the economics of running a nursery are most challenging.
Disadvantaged families left further behind
There is also a shift away from support for disadvantaged children. Tighter eligibility criteria for the disadvantaged two-year-old offer have seen the proportion of children entitled to a funded place fall from almost 40% in 2014 to under a quarter today. Total spending on this group — £480 million in 2024 — is less than half what it was a decade ago.
Meanwhile, the share of early years spending directed at working families has leapt from 15% in 2014 to 48% in 2024 and is on track to reach 58% in 2025. Critics argue this shift prioritises getting parents back into work over ensuring the most vulnerable children receive quality early education.
Sector leaders sound the alarm
Tim McLachlan, Chief Executive of the National Day Nurseries Association said:
‘’The Government is still spending less on our children's early years than at any other time in their education. This makes no sense." He warned that unresolved pressure from wage and National Insurance increases could accelerate nursery closures, worsening the access crisis already facing many families.
Neil Leitch, CEO of the Early Years Alliance argued that the political focus on getting parents back to work — rather than supporting access to early education — is "exacerbating disadvantage gaps and embedding inequality, rather than tackling it."
The early years crisis sits within a broader pattern of declining public investment. Overall public spending on education has fallen from around 5.6% of national income in 2010–11 to approximately 4.1% in 2024–25 — matching historic lows last seen in the late 1990s, the late 1980s, and the mid-1960s.
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