Government funding for early years education and childcare is likely to fall by 8 per cent next year in real terms, economists have warned.
The Institute for Fiscal Studies says rampant inflation means a cash injection for the sector announced last year will now not be enough to keep up with rising costs.
Childcare providers’ costs are set to rise by 9 per cent between 2022-23 and 2024-25, wiping out a funding rise from £3.6bn to £3.75bn announced at the last spending review.
Josh Hillman, director of education at the Nuffield Foundation, said the finding shows there was a substantial gap in the funding settlement for early years education.
“Very real cost pressures on childcare providers and families make early years provision for all pre-school children much more precarious,” he said.
Real-terms spending on free childcare has increased over the long term, more than doubling since 2009-10 from about £1.7bn to more than £4bn last year.
The government has expanded the availability of free childcare over the past decade, with three- and four-year-olds entitled to 30 hours free childcare for 38 weeks a year. Families with two-year-olds on lower incomes are also entitled to childcare.
Elaine Drayton, a research economist at the IFS who authored the report, said: “Over the past decade or so, the government has prioritised the early years above other stages of education, rolling out new childcare entitlements for disadvantaged two-year-olds and for three- and four-year-olds in working families.
“This has meant increasing spending on free childcare hours while other public services have seen cuts.
“But early years providers are facing rapidly rising costs that are eroding the value of their budgets. Childcare providers’ costs had already been rising faster than economy-wide inflation over the last few years, but they face an even steeper rise in the coming years.
“That will leave government funding for the free childcare programme much lower than had been intended when the budget was last set in 2021.”
Chancellor Jeremy Hunt will next week unveil his first budget, in which he is expected to make cuts to public expenditure and raise taxes.
Responding to the report, Bridget Phillipson, Labour’s shadow education secretary, said the party would bring in free breakfast clubs for primary school-age children if it was in power.
“The IFS’s findings simply reinforce the need for the new, modern childcare system that Labour will build in government,” she said.
“The falling value of childcare support means parents will face even higher bills or more nursery closure, all because the Conservatives crashed the economy.
“Labour will offer breakfast clubs for every primary school child in England and enable councils to open new maintained nurseries, as the first step on the road to a new modern childcare system.”