DfE have today announced the early years funding settlement for 2023-24, which leaves the early years sector struggling on below inflationary increases. While an additional £10m for the least well-funded maintained nursery schools (MNS) is welcome, and an additional £20m for the Early Years National Funding Formula represents a token acknowledgement of the additional wage and inflationary costs facing the sector, it is nowhere near enough to address the crisis in recruitment and retention which is having a real impact on quality, sufficiency and affordability, especially in the most economically challenged areas. Young children will bear the brunt of this failure to invest in the high quality early childhood education which is proven to make a difference to future life-chances.

DfE’s response to the consultation updates and amends the national funding formulae that determine local authorities funding rates for the free childcare entitlements. They have implemented almost all of the changes proposed, meaning that rates will not increase uniformly across the sector. This includes rolling the Teachers Pay and Pensions Grant (TPPG) for primary schools into the EYNFF, leaving it up to local authorities to decide whether it continues to be allocated to schools to assist with additional staffing costs. The additional £10m for maintained nursery schools, bringing up funding levels for the least well-funded, is confirmed, with MNS share of the TPPG added to the supplementary funding in addition.

Although there was no new money for the early years sector in the Autumn Statement, the DfE has made available an additional £20m funding for Early Years, on top of the additional £180m for 2023-24 already announced at the Spending Review.  DfE intend this to help support providers at a national level with the additional National Living Wage costs associated with delivering the free childcare entitlements next year. However, increases will in the most part remain well below inflation, posing further challenges to an already stretched sector.

Local authority hourly funding rates for 2023-24

The hourly funding rates for the 2-, 3- and 4-year-old early years entitlements for 2023-24 have now also been published. These tables setting out each authorities’ rates also include the new hourly rates for Maintained Nursery Schools and the Early Years Pupil Premium, and the yearly funding rate for the Disability Access Fund in 2023-24.

Local authorities will receive average funding increases of 3.4% for the 3- and 4-year-old free childcare entitlements and 4% for the 2- year-old entitlement, compared to their 2022-23 rates. In line with the protections policy set out in the Government response document, all local authorities will benefit from at least a 1% increase in their funding rates in 2023-24, with increases for some up to 4.9% for 3- and 4-year-olds, and up to 10% for 2-year-olds.

Maintained nursery schools

The consultation response document confirms DfE are progressing with reforms to ensure a fairer distribution of supplementary funding and address the long-standing concerns from local authorities who do not currently receive any supplementary funding for their MNSs. DfE are introducing a minimum and maximum hourly rate that a local authority can receive for their MNSs to create a fairer distribution of funding. The minimum rate will be set at £3.80 in 2023-24, and the cap on the hourly rate will be set at £10 in 2023-24, with transitional arrangements for the most affected LA (Westminster). DfE intend to maintain the cap at that level in 2024-25. Local authorities not affected by the floor or the cap will see their MNS supplementary funding rate increase by 3.4% in 2023-24.

Technical Note and Operational Guide

A Technical Note and an updated version of the Operational Guide for local authorities give further details of how the funding allocations are derived. The Guide has been revised to reflect the latest rates as well as changes resulting from amendments to the formulae. This includes advice on how LAs might use their quality supplement to channel the additional Teachers Pay and Pensions Grant funding that has been rolled into the funding for 3- and 4-year-olds. DfE have increased the cap on supplements from 10% to 12% to give flexibility to the minority of authorities who will need it to respond to these changes.

EY Dedicated Schools Grant (DSG) allocations

Finally, the initial DSG allocations for the Early Years block for 2023-24 have been published. These allocations will be updated in July 2023 in the usual way.