Government urged to consider new funding options for early childhood education and care

A coalition of Early Years organisations convened by Kindred2 , including Early Education and providers such as LEYF and Ark Start, has identified a series of practical and affordable options for improved Early Years spending in England. 

The analysis, by one of the largest economic consultancies in Europe, Frontier Economics, is based on current government spending but the modelling shows how significant rebalancing could better support working families and improve outcomes for children.

The work is supported by HFL Education, Leeds Beckett University – The International Montessori Institute, nesta, Save the Children and The Sutton Trust. 

This is the first time a coalition of this size and scope has joined forces to make a unique and significant intervention in the debate around childcare provision in England.

The coalition wanted to understand how limited funding could best be used to provide childcare that is affordable for parents but still provides high-quality education for children.

This is a fundamental challenge: more hours and greater flexibility benefits working parents while stability and a moderate number of hours over a longer period benefits children.

There is widespread agreement that the current system isn’t working:

  • Parents: 96% of families say childcare is too expensive, and 50% of non-working women would prefer to return to work if they could arrange suitable and affordable childcare
  • Children: The most recent Kindred2 survey suggests that, on average, 50% of children are not meeting their developmental milestones as they enter Reception  
  • Providers: 65% more nurseries closed in the summer term this year compared to last year, with increased sustainability concerns given increasing operating costs
  • Staff: 45% of childcare workers claim Universal credit to supplement low pay

At present, the government spends over £5bn a year on Early Years provision through a mix of demand (benefits and tax credits) and supply (direct funding to providers) funding methods. The largest spend covering the Free Early Education Entitlement is £3.95bn (less than 5% of the Department for Education (DfE)’s total budget)

The coalition presents four new, simplified options for funding, based on the Department for Education’s assessment of the breakeven costs of provision (the current funding only subsidises two thirds of costs). 

The four options would improve quality, affordability, accessibility and availability.


1. Universal access from 2yrs – £4.08bn

  • All children get 15 hours free childcare from 2 years
  • Working families can access funding sooner by spreading the current spend on 3 & 4 year olds to include 2 year olds
  • Simpler administration supports greater take up by those who gain most from high-quality nursery places.

2. Boost prospects of disadvantaged children – £4.59bn

  • All children get 15hrs free childcare from 2 years, with a disadvantage premium rate paid for children from lower income families
  • The disadvantage premium secures access and quality for all
  • Providers incentivised to work in the most disadvantaged communities where high quality has greatest impact on children, supporting expansion of the labour market.

3. Ensuring high-quality places are available for all – £6.09bn

  • Nursery fees capped with no hidden ‘‘extras’ demanded of parents
  • All children get 15hrs free childcare from 2yrs, with a disadvantage premium rate paid for children from lower income families
  • The disadvantage premium secures access and ensures quality for all
  • Funded in line with DfE analysis of cost of provision, ensuring sustainability of provision

4. Support parents to grow the workforce £23.2bn

  • 30 hours free childcare for all children from age 1
  • Provision across 48 weeks instead of current 38 weeks
  • Options for weighting stakeholder contributions to achieve the increase in funding necessary

Getting the funding of childcare right is critical because the pre-school years are the foundation of individual achievement and societal prosperity. 

Children who attend high-quality nursery for 2-3 years are almost 8months ahead of children when they start school compared with those who do not attend nursery. 

This impacts outcomes later in life, with 40% of the attainment gap at 16 being evident at 5.

Felicity Gillespie, Director, Kindred2 said: 

“If children, families and childcare provision are going to be the focus of a key political battleground at the next election then it’s vital we have a proper debate based on the real numbers. The work we’ve commissioned shows that much more can be done to help make early years education more affordable and more accessible by simply rebalancing the funding that already exists. If we want to tackle the persistent attainment gaps in education, if we want to improve life chances, then we can start by making some of the relatively simple changes we are proposing.”  

Beatrice Merrick, Chief Executive, Early Education said:

“It’s time for policy makers to stop tinkering around the edges of the early education and childcare system, and go back to core principles to create a system which will deliver for children, parents and society as a whole. 

Every child should have a right to 15 hours a week of high-quality early education from age 2, giving them the best start in life.

An increase in funding is needed across the board, but especially targeted at the least advantaged children, to ensure that the quality of provision is high enough to to deliver its potential impact on children’s outcomes.  Beyond this, the system needs to be affordable and accessible for all working parents, with support targeted at those earning least.  Our proposals show that there are options which move us quickly in the right direction to achieving these goals as part of a much needed long-term strategy for the early years.”

June O’Sullivan, CEO, London Early Years Foundation (LEYF) says:

“Without doubt, high-quality childcare provision generates significant and sustained improvements to child outcomes. However, for this to be a reality we need to reconfigure and readjust where the current funding is spent and work towards providing support for the ambition of reducing inequalities. This will enable all children, regardless of their background, to have an equal start in life. Our new Prime Minister must now honour Number 10’s levelling up promise by improving the quality, affordability, accessibility and availability of childcare and fix what is currently a broken system.”

Katie Oliver, Director, Ark Start, said:

“All the research backs up high-quality early education as crucially important for children’s development and there are sensible ways that we can change the system to ensure more children and parents benefit. The rewards if we get it right are huge. Most critically, the right nursery before school, means better outcomes for that child for the rest of their life.”

Find out more and read the report

Further reading

Become a member

For more articles and professional learning

Find out more

Browse Early Education publications