The research shows that 85 per cent of the councils NDNA could analyse are not passing on the full uplift from the Department for Education.
At the same time, 20 councils have had their funding rates cut centrally by the DfE.
The NDNA analysed 119 local authority base rates for the two-, three- and four-year-old funded places, and found that in 66 local authorities the increase in funding given to providers for three- and four-year-old places was lower than the uplift provided to the council by the DfE.
Councils can currently retain up to 5 per cent of the hourly rates for children in their area to fund administration and give extra support to providers, ie. they should be passing on at least 95 per cent of the funding they receive from central government.
Two-year-old funding
The average base rate that nurseries across England now receive for two-year-old places is 93 per cent of the allocated funding. This means that although councils receive on average of £8.44 per child per hour, nurseries receive on average only £7.85 for places.
For 57 councils the base rate funding for two-year-old places to providers has been lower since April than it was last September, according to the NDNA.
Overall, more than a third of councils are passing less than 93 per cent of their government funding for two-year-old places to childcare providers and that rises to almost three quarters (74 per cent) for three- and four-year-old childcare places.
Pass through rates range from 78 per cent in Wandsworth – where providers reported a base rate of £8.77 per hour per child out of the £11.17 per hour the DfE provides to the council – to 99 per cent in Nottinghamshire.
Pass-through funding rates of the 119 local authorities analysed for funded twos shows:
- 78 councils are receiving 93 per cent.
- 28 councils are receiving 88 per cent - 93 per cent.
- 13 councils are receiving less than 88 per cent.
NDNA has also discovered that 31 local authorities out of 119 analysed are giving providers different rates for eligible two-year-olds from disadvantaged backgrounds and for two-year-olds of working parent families.
Three- and four-year-old funding
NDNA said the situation has worsened for three and four-year-old places.
According to NDNA the average rate providers receive for three- and four-year-olds is now over 50 pence per hour below the rate that the Government is funding councils.
Eighty-eight councils (out of the 119 surveyed) are receiving less than 93 per cent of the allocated funding, with 27 receiving less than 88 per cent.
Highlighting the varying rules which councils apply to early years funding for three- and four-year-old places, the research found the average base rate paid to all providers was 90 per cent of the funding councils receive from the DfE.
This ranged from 77 per cent in Hammersmith and Fulham to more than 98 per cent in Lancashire and Warrington.
Three London councils are passing on 80 per cent or less through their base rates: Ealing 78 per cent; Hammersmith and Fulham 77 per cent, and Camden 80 per cent.
Separate NDNA survey data from providers suggests that 83 per cent of settings do not believe the current rates for three and four-year-old places cover the cost of delivery.
Purnima Tanuku, chief executive of the NDNA, said, ‘A lot has been made about the increased investment in early education and care due to the Government’s expansion plans. While extra money is good news for parents and a welcome investment in children’s early learning, these figures show that it is not all reaching the front line.
‘Councils and providers face a very complex and outdated funding system that doesn’t mean money to fund early education and care reaches the providers who are working with our youngest children.
‘Nurseries and other childcare providers are expected to deliver this expansion to two-year-olds when their funding has actually dropped in many places.
‘For now, nurseries have far more three and four-year-old children on funded places but funding rates they are receiving for those places is even worse.’
She added that the funding model needed ‘to be fixed and quickly’ ahead of the rollout of the funded places for children from nine months in September.
Extra supplements
Councils can also create extra budgets for supplements which give top-up payments for children in areas of deprivation, children with special educational needs and disabilities (SEND) and elements such as provider quality.
Tanuku added, ‘We need to see councils properly funded for the work they do, not having to top-slice from budgets set aside for children’s care and education. We also know that any money left over in early years budgets is often used to off-set overspends in high needs.
'Meanwhile nurseries cannot access the funding they need to support children with SEND in their setting. Additional supplements here and there do not meet the complex needs that providers are seeing in our youngest children.’
Department for Education response
The Department for Education said the latest available information shows that in 2023-24 all local authorities met the 95 per cent pass-through requirement.
They said that depending on how a local authority constructs its local funding formula, some areas would have lower base rates than others, as the level and use of supplements and special education needs inclusion fund payments will vary.
The DfE also re-confirmed that the amount of funding local authorities must pass through to childcare providers will increase from at least 95 per cent to at least 97 per cent and wants to move to a pass-through rate of at least 97 per cent 'as soon as is practically possible and will review whether this is appropriate for 2025-26 closer to the time.'
They also reconfirmed that from next year councils must confirm final hourly rates to providers within eight weeks of government publishing local authority rates.
A DfE spokesperson said, 'This report focuses on the base rate passed to providers by local authorities, and so is not an accurate reflection of the total funding being delivered.
'Local authorities must pass on at least 95 per cent of their government funding, which includes the base rate as well as additional funding to reflect local needs such as SEND provision or deprivation.'
This article was updated with the DfE response on 16 May 2024.
