England & Wales Education and children's services, Finance, Welfare and equalities

Budget 2023 – A revolution in childcare?


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HM Treasury’s budget press release proclaims “A revolution in childcare”. So, what is the revolution, and will it succeed?

The Chancellor announced an additional £5bn a year spending on childcare by 2026-27. This will more than double the State’s support for early years education and childcare.

Today, most working parents get 30 hours a week of early years education and childcare without charge during term time (1,140 hours a year) for their 3 and 4-year-olds. Where parents are not working or are studying, it’s 15 hours a week. Two-year-olds from vulnerable families can get 15 hours a week.

What’s planned for early years provision?

The new investment is being targeted solely to support the childcare costs of working parents so that they participate in the labour market. From April 2024, working parents of 2-year-olds will be able to access 15 hours a week during school term time and from September, it will be extended to children aged from 9 months. This entitlement will increase to 30 hours a week from September 2025.

Typically, a full-time working parent will need 40 or more hours a week of childcare. Hours in addition to the entitlement have to be paid for by the parent. In order to help working parents on Universal Credit (UC) pay for additional childcare, the Chancellor announced that the UC ‘cap’ will increase by nearly 50% to £951 for one child (up from £646) and £1,630 for two children (up from £1,108), i.e. parents will receive more support to pay for the actual cost of the additional childcare needed (£50 million in 2023-24).

Also, UC payments will be paid in advance rather than arrears (£100m in 2023-24). Where one parent is ‘economically inactive’ (usually the mother) this will support the parent into work where the family is on Universal Credit.

Can early years provision afford to expand?

Early childhood education and care provision in the UK is a complex picture of private, voluntary and independent settings as well as childminders based in their own homes. Added to the mix are local authority-maintained nursery schools and nursery classes in many maintained and academy schools; in addition to the early education entitlement provided by these settings, some provide additional childcare for which a charge is made.


How this is funded is equally complex. Funding comes from parents, employers, UC, tax allowances, and the Government by way of the Early Years Grant managed by local authorities so that parents can access the ‘free’ entitlement.

For many years, Government funding has not met the cost of providing the entitlement. Providers have made up the cost from increased charges for non-entitlement provision, particularly for children aged 2 and under. While there has been sustained growth in large profit-driven and often equity-funded nursery chains, those that are small stand-alone private, charitable or not-for-profit settings have struggled. The underfunding of the entitlement provision has been recognised. An additional £204m has been injected into the Early Years Grant for existing provisions in 2023-24 (£288m in 2024-25).

2024-25 and beyond

New funding in 2024-25 when the additional entitlement starts is £2.4bn, rising to £4.2bn in 2025-26. The Institute for Fiscal Studies (IFS) estimates this will leave Whitehall in charge of the price of 80% of all preschool education and childcare provision in England (up from just under 50% now). That raises the stakes for getting the funding rate right: too low and providers could opt out of delivering the new entitlement or even exit the market entirely – and risks making it even harder for parents to find a childcare place. It’s a high-risk strategy.

Capacity and planning

The IFS points out that the increased funding establishes a ‘new arm of the welfare state’ where the provision of childcare becomes a public responsibility through control of the market. Hitherto, parents privately found childcare, and the state assisted with the cost and guaranteed quality. Is it efficient to rely on the patchwork of current providers when the state has almost total control of the market?

The Government has not yet produced an impact assessment of its proposal which should include an assessment of delivering the increased early years capacity and the risks. Government plans appear rushed. The DfE has posted a Media Hub explainer.

So far, there has been no suggestion that the current statutory framework – the Childcare Act 2006 as amended by the 2016 Act – needs amending. Local authorities have statutory duties under sections 6 to 10 to secure sufficient early years provision for working parents, and specifically to secure the free entitlement provision. Local authorities will be able to get money from the increase in the Early Years Grant to do this significant planning and organisational task. However, additional government support has been offered ahead of the implementation date.

To increase capacity, the DfE will relax the ratio of adults to children from 1 to 4 to 1 to 5 for 2-year-olds following consultation during the Summer. The DfE will pay a start-up grant to new childminders of £600 when registered with Ofsted. Potential childminders who go through the childminder agency route will receive £1,200.

The expansion will be for the youngest children. Baby rooms require more space per child. The DfE has not announced any capital grant.


Early childhood education and care provision currently face a workforce recruitment and retention crisis. Nursery practitioners get more pay for fewer hours stacking shelves at the local supermarket. The budget makes no provision for investment in the workforce ahead of the commencement of the additional entitlement.

The workforce is one that is dominated by poorly paid, trained and qualified women. Providers also know from bitter experience that the expansion of entitlements without adequate investment in staff can lead to difficulties. While the DfE is relaxing the ratios, it is also proposing additional welfare requirements on early years providers, e.g. on the supervision of children when eating.

The DfE’s post-pandemic Early years education recovery programme: supporting the sector, although updated on Budget day, now needs a radical overhaul.

Parents, particularly those of the youngest children, need to have confidence that settings will look after their children’s safety and welfare and provide a quality educational experience. This requires adequately trained and experienced staff.

Children whose parents are not working

With the focus on working parents, this budget layers more disadvantages onto those children whose parents are not in-work, many of whom need the most support. For children whose parents are not in-work, as well as those who are engaged in study, the entitlement will remain at 15 hours a week, for vulnerable 2-year-olds and all 3 and 4-year-olds.

Evidence shows that participation in high-quality early years provision gets a child off to the best start in life, perhaps more so for children of non-working parents.

Children whose parents’ working status means that they won’t be entitled to the additional hours disproportionately come from homes that are described as ‘disadvantaged’. It’s those children who the evidence shows benefit most from early years education integrated with childcare. The gap between disadvantaged children and their peers is already substantial. By advantaging children of working parents, the achievement gap is likely to widen and the Government’s social mobility and levelling-up objectives undermined.

Wraparound care for school-aged children

Local government will be granted £5m in 2023-24 to plan wraparound provision for all school-aged primary children. In 2024-25, £230m will be granted and £110m in 2025-26. Further information is awaited but presumably an element is for schools and other providers to make building adjustments and purchase equipment. Once established, parents will have to pay for what will be childcare (not educational) provision. The commitment is similar to the Labour government’s extended schools. A bold plan is needed if this initiative is not to fall by the wayside because of capacity, planning and funding problems.

The Election

The Budget’s announcement on childcare feels like a scene-setting for the forthcoming general election given how the Opposition has tried to corner this issue in recent weeks. A response from the Labour Opposition is anticipated.

A revolution?

Most revolutions fail. We only hear about the ones that succeed. To succeed, the Government needs to plan for affordable early education and childcare for all children which can be owned by each community to meet local needs as well as those of the local and national economy. This means bringing together the current separate funding streams, working out how all the small local providers can be led, and possibly managed, by local government, and help local government plan for a much-needed revolutionary change in integrated early years and childcare provision.

Megan Pacey is an LGIU Associate. You can read her recent early years round-up here.

You can contact John Fowler at [email protected].

The LGIU’s briefing on the budget is here.

The LGIU is pleased to receive comment on this piece. Implementing the Government’s plans will be a significant opportunity to demonstrate local authority competence and capacity. Short pieces about individual local authority plans are most welcome for LGIU publication.


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