In March, the education secretary announced £204m additional funding to increase the hourly rates from September, heralded as supporting providers to get ready for the expansion of funded places from next April.
However, new analysis by the National Day Nurseries Association (NDNA), suggests many providers’ funding rates have increased by just tens of pence per hour.
According to the figures, the average rate has increased from £4.85 to £5.17 for three and four-year-olds. In comparison, the increase for two-year-olds is an extra £2.02 per hour.
Base rates
It also reveals that in some council areas, the proportion of funding they pay directly as a base rate has gone down, not up.
Local authorities have a duty to ‘pass through’ 95 per cent of their total funding to providers but many use ‘supplements’ which are distributed to some providers and eligible children, but not all. This means that some nurseries will only receive the base rate amount.
Analysing base rates as a proportion of council’s central funding, NDNA found base rates ranged from 76 per cent to 97 per cent of their full funding amounts.
A total of 95 local authorities were found to be passing on more than 92 per cent of the full funding they receive to providers.
Key findings from the analysis include:
- The average rate the DfE says it pays to local authorities in England for three and four-year-old places is now £5.62, but the average rate that providers receive as their base rate is £5.17.
- A quarter of local authorities are not giving providers more than 88 per cent in their early years base rate funding for three and four-year-olds despite the recent uplift from the Government.
- A total of 19 local authorities out of the 111 analysed are not passing on the full amount of funding increases to providers through their base rates.
- Eight out of ten councils who are paying the lowest proportional base rates to providers are in the London area.
- The average base rate is £90.57 per cent of the rate the local authority receives. Only a third of local authorities in the sample of 111 give providers more than 92 per cent in their base rate.
- Although rates for two-year-old places are much higher, 15 councils are paying proportionally less of the Government money to providers than in previous terms.
'We are extremely concerned that too many councils are not passing on more funding to providers'.
Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said, ‘At a time when nursery costs are rising sharply and we have seen more settings close their doors, increasing funding by only 32p is clearly not enough. Having analysed the base rates that providers are receiving across England, we are extremely concerned that too many councils are not passing on more to providers for the delivery of funded early education and care.
‘Increasing the two-year-old rate, but doing very little with the rate for three and four-year-olds leaves more providers in a financially vulnerable position.
‘The system that has been set-up is so complicated that families struggle to understand what they are entitled to and providers have to spend a lot of time on administration that could be better spent with children. With the expansion coming on board, the investment will not be well spent if money goes into the same overly complex system.
‘We are expecting the new minimum wage rates soon for April 2024 and we already know from the Chancellor that the National Living Wage will rise to at least £11 per hour. The funding must be increased to allow for this, along with inflation for energy and food, rising interest rates and business rates.’
