The government’s latest changes to the early years funding formulae bring two key changes which we pointed out in our response to the consultation would spread an already limited amount of funding unevenly across the country. Our analysis of the published 2023-24 allocations shows this to be the case and looks at where the funding squeeze will be most acute.

A small group of local authorities benefit from both the maximum increase to the 3- and 4-year-old funding rate (at or near 5%) and to the 2-year-old rate (at or near 10%). Thirteen of these are in the South East, four in Outer London and two in Inner London. Settings and schools in these areas will see their 2-year-old funding rise at nearly the rate of inflation while their 3- and 4-year-old funding rises at only half that rate, but they are in a better position than others.

A second group, comprising the other local authorities in Inner and Outer London plus Slough in the South East and Hertfordshire in the East of England, benefit from the addition of a premises factor to the 2-year-old formula, and receive at or near the maximum 10% increase to their 2-year-old funding rate. However, they receive an increase in 3-/4-year-old funding at or near the 1% minimum. As the latter makes up the majority of the allocation, the increased 2-year-old funding is unlikely to offset the challenges of a real terms cut of around 10%, especially given the increase in the minimum wage, fuel costs and everything else.

For all other local authorities, the regional trends are less pronounced, and more variable between individual local authorities, although the North East of England and Yorkshire and the Humber fare particularly badly. Overall picture is grim: the average hourly rate for 3-/4-year-olds rises at best at half the rate of inflation, and 20 local authorities will receive only a 1% increase to that rate. For the 2-year-old funding, the picture is even worse with 64 local authorities seeing a rise of 1.1% or less.

In 18 local authorities (spread across the East and West Midlands, North East, North West and Yorkshire and the Humber) the 3-/4-year-old funding will rise by 1% or less and the 2-year-old funding by 1.1% or less, representing a real terms cut of 10% across the board.

The funding allocations may have been based on more up to date data, so it may be that the local authorities with more disadvantaged children or those with additional needs have been protected in relative terms from the worst of these real terms cuts. But this argument is unlikely to cut much ice with a sector already struggling to keep its doors open and facing real terms cuts at a time of unprecedented financial pressures.