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Research from the Institute for Fiscal Studies has concluded that despite recent increases in early years funding, providers are set to continue to face significant financial pressures.  

The IFS’ Annual Report on England Spending in England, highlighted that while early years spending has doubled in real-terms since 2010, it does not go far enough to offset the range of costs providers face, especially when considering the upcoming increases to the National Living and Minimum Wages and to employer National Insurance contributions. 

In the Autumn Budget, the government confirmed that from April, employer National Insurance Contributions will increase from 13.8% to 15%, with the per-employee threshold at which employers start to pay National Insurance reduced from ÂŁ9,100 to ÂŁ5,000 per year; while the national living wage will increase by 6.7% for employees ages 21 and over, and the national minimum wage will rise by 16.3% for 18-20 years olds, and 18% for under-18s and apprentices. 

The IFS also noted that funding uplifts have been primarily directed to younger children. As a result, funding for the three-and four-year-old entitlements have continued to fall short of rising provider costs, with the average funding rate for this age category worth around 15% less in 2024/25 than in 2012/13 once cost rises have been factored in.

The report also said that several locations risk being unable to meet demand amid the rollout of the early entitlement expansion which – by September – will see eligible working families able to access 30-hours of early education and care from nine months onwards. It highlighted that while national government figures imply demand will be met, locally many authorities are set to struggle to provide enough places, with the upcoming expansion of school-based provision unlikely to go far enough to meet demand.  

Commenting, Neil Leitch, CEO of the Early Years Alliance, said: 

“The IFS is absolutely right to highlight that, despite increases in early years funding in recent years, ongoing and upcoming cost pressures – including changes to employer National Insurance contributions – are likely to increase the financial strain on early years providers. We’re clear that this, alongside the continued underfunding of three- and four-year-old places, will result in countless settings across the country struggling to meet demand this year and beyond.   

“What’s more, while national figures may suggest that there are enough places to meet parental demand under the entitlement expansion, as the report makes clear, the local picture is very different, with many regions reporting a mismatch between supply and demand and warning that the upcoming expansion of school-based provision is unlikely to go far enough to meet the local need for places.   

“Let’s be clear: while there’s no doubt that that recent increases in early years funding are a positive step, they are far from enough to offset years of underfunding and continued significant cost pressures.  

“Ultimately, if 2025 is truly going to be a year in which the early years is prioritised, government must put in place meaningful action to address the continued financial pressures on providers as soon as possible. Without this, it simply won’t be possible for settings to keep the promise government has made to families.”