Parents set to face shortages of government-funded early years places and rising costs as nurseries and childminders face “perfect storm” of government policy changes, new Early Years Alliance survey finds
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Nurseries, pre-schools and childminders in England have warned they
are likely to have to limit the number of government-funded early
years places on offer to parents and increase prices as a result of
the combined impact of National Insurance rises, minimum wage
increases and updated rules on charging, all of which are due to
come into effect next month, a new survey from leading early years
membership organisation the Early Years Alliance has found.
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Nurseries, pre-schools and childminders in England have warned they are likely to have to limit the number of government-funded early years places on offer to parents and increase prices as a result of the combined impact of National Insurance rises, minimum wage increases and updated rules on charging, all of which are due to come into effect next month, a new survey from leading early years membership organisation the Early Years Alliance has found. Cutting funded places According to the online survey, which received over 1,100 responses from early years providers, of the 98% of respondents offering government-funded places to three-and four-year-old places, four in ten (41%) are likely to reduce the number of funded three- and four-year-old places they offer over the next year, while a further one in six (18%) said that they could opt out of the three-and four-year-old scheme altogether. The most common reason for these changes – cited by 89% of relevant respondents – was the impact of recently-updated guidance from the Department for Education, which clarifies that any parental charges for additional goods and services related to take-up of the early entitlement offers must be wholly voluntary. Respondents also cited the impact of minimum and living wage rises (66%) and National Insurance increases (57%). Of the nine in 10 respondents who had received confirmation of their three- and four-year-old funding rate for 2025/26, 90% warned that it will be less than the cost of delivering places, with more than half (55%) saying it will be significantly less. Of those respondents (98%) currently offering funded places for two-year-olds, nearly a fifth (18%) are likely to reduce the number of places they offer over the next year, while a further 5% could opt out of the two-year-old scheme entirely. Limiting the expansion of funded places While the funded entitlement for eligible working families of two-year-olds and under-twos is set is to increase from 15 to 30 hours per week from September, next month's policy changes have also prompted many settings to rethink any expansion plans. Only just over a third (36%) of those offering funded two-year-old places currently plan to extend all 15-hour places to 30-hour places, while over a quarter (28%) will only extend some places, 10% don't plan to extend any and a further 26% are undecided. Of those settings (61% of all respondents) currently offering funded under-twos places, only 41% are planning to increase all 15-hour places to 30-hour places, with 19% only planning to extend some places, 6% not planning to extend any and 17% undecided. Impact on families and settings In addition, as a result of the growing pressures on early years settings, over the next 12 months:
The Early Years Alliance is calling on the government to take urgent action to mitigate the impact of upcoming policy changes by:
Survey comments "We cannot run at a loss year on year. The increases this year in staffing costs (NI and living wage) plus the increases in energy, rent, food and resources mean the setting is no longer sustainable unless we reduce funded places and increase our fees.” “The funding just doesn't cover the costs. We're a term-time setting with no options to restrict or limit hours to gain more income. With costs increasing in all areas, we will have to make detrimental cuts to our outstanding services which will create a poorer quality or education and care.” “We try and keep costs as low as possible as a charity pre-school, but with increasing expenses and a minimal funding increase, I do not know how the next year or two will go. If there is a similar increase of NMW next year and the funding rate does not match this percentage, we will probably close.” “Currently, we are struggling to stay afloat. The funding we receive from our local authority isn't enough and with the parents only taking their eligible hours and not being able to charge extras, it's looking likely we may close.” “I, like many other PVI setting owners I speak to, am close to breaking point. I care passionately about doing a good job for our children and am proud to maintain high standards in all I do. However, the inadequate funding we receive means we're having to cut staff hours, not replace resources and limit CPD which leaves me feeling like if I can't do a great job... Early years is regularly spoken of as being ‘crucial' so where's the money to back that up?” “I am an experienced-based delivery setting. We go on trips and outings daily. It will be virtually impossible to deliver what I do currently without parents paying the supplement I charge. It has always been voluntary but now because of the DfE campaign pictures saying childcare will be cheaper and how they will stop ‘overcharging', my parents are expecting the same delivery style but want to opt out of the enhanced provision payment that previously they have always been happy to pay.” “The gap between funding rate and daily rate has become too big to bridge [so I'm] giving serious consideration to dropping three- and four-year-old funding altogether and filling any vacancies with two-year-olds. However, funding for two-year-olds, at the current rate, will fall below cost of delivery within three years, so future longevity is a serious concern.”
Commenting, Neil Leitch, CEO of the Early Years Alliance said: “These survey findings should set alarm bells ringing across government. At a time when ministers are looking to significantly expand the early entitlement scheme, we have a huge proportion of providers warning that the exact opposite is likely, with many forced to limit funded places or opt out of the offers entirely due to unsustainable financial pressures. “While we of course recognise the need to ensure clarity and transparency for parents when it comes to additional charges for entitlement places, the fact is that this updated guidance has been implemented against a backdrop of severe and sustained underfunding, which the government has yet to address, or even acknowledge. Add to this the impact of upcoming increases in both National Insurance contributions and the national minimum and living wage, and you have a perfect storm of challenges for early years providers – one that many will not be able to survive. “If the government is to have any chance of ensuring that families can access the quality, affordable early years care and education that they've been promised, then it needs to support the businesses that deliver this. That means ensuring that funding actually meets the cost of delivering high-quality places, both now and in the future, so that providers don't need to rely on additional charges to keep their settings afloat and are able to withstand changes like the upcoming National Insurance rise. “It is one thing to recognise the importance of the early years, but it is quite another to deliver the financial and practical support that settings need – and make no mistake, our sector needs it now. We therefore urge the government to work with the sector and ensure that the early years gets the investment it needs to deliver on the promise made to parents – before we reach the point of no return.”
The survey was carried out between 4 and 11 March 2025 and received 1,155 responses KEY FINDINGS How would you best describe where you work in the early years? Nursery, 34% Pre-school, 36% Childminding professional, 27% Maintained nursery school, 0% Primary school nursery class, 0% Specialist provision, 0% Other (please specify), 2%
How would you best describe your role within your setting? Please choose the description that matches your current role most closely – if none are similar to your role, please choose ‘other' and specify your role Owner only, 14% Both owner and manager, 34% Manager only, 23% Deputy manager, 3% Early years teacher/professional/Level 6 educator, 4% Room leader, 0% Level 4 or 5 educator, 2% Level 3 educator, 4% Level 2 educator, 0% Level 2 assistant, 0% Unqualified educator, 1% Apprentice, 0% Committee member / Trustee, 2% Treasurer, 1% Administrator, 6% Other (please specify), 7%
If you operate more than one setting, please base your answers to the following questions on one setting. What local authority is your setting based in? Barking and Dagenham, 0% Barnet, 1% Barnsley, 0% Bath and North East Somerset, 1% Bedford, 0% Bexley, 0% Birmingham, 1% Blackburn with Darwen, 0% Blackpool, 0% Bolton, 0% Bournemouth, Christchurch & Poole, 1% Bracknell Forest, 0% Bradford, 1% Brent, 0% Brighton and Hove, 0% Bristol, 1% Bromley, 1% Buckinghamshire, 2% Bury, 0% Calderdale, 1% Cambridgeshire, 2% Camden, 0% Central Bedfordshire, 1% Cheshire East, 1% Cheshire West and Chester, 1% City of London, 0% Cornwall, 1% Coventry, 0% Croydon, 0% Cumberland, 0% Darlington, 0% Derby, 0% Derbyshire, 2% Devon, 2% Doncaster, 0% Dorset, 1% Dudley, 0% Durham, 0% Ealing, 1% East Riding of Yorkshire, 1% East Sussex, 2% Enfield, 0% Essex, 5% Gateshead, 0% Gloucestershire, 1% Greenwich, 1% Hackney, 0% Halton, 0% Hammersmith and Fulham, 0% Hampshire, 4% Haringey, 0% Harrow, 0% Hartlepool, 0% Havering, 2% Herefordshire, 1% Hertfordshire, 3% Hillingdon, 0% Hounslow, 0% Isle of Wight, 0% Isles Of Scilly, 0% Islington, 0% Kensington and Chelsea, 0% Kent, 8% Kingston upon Hull, 0% Kingston upon Thames, 0% Kirklees, 1% Knowsley, 0% Lambeth, 1% Lancashire, 1% Leeds, 1% Leicester, 0% Leicestershire, 1% Lewisham, 0% Lincolnshire, 1% Liverpool, 0% Luton, 0% Manchester, 0% Medway, 0% Merton, 0% Middlesbrough, 0% Milton Keynes, 0% Newcastle upon Tyne, 0% Newham, 0% Norfolk, 3% North East Lincolnshire, 0% North Lincolnshire, 0% North Northamptonshire, 1% North Somerset, 0% North Tyneside, 0% North Yorkshire, 1% Northumberland, 0% Nottingham, 0% Nottinghamshire, 1% Oldham, 0% Oxfordshire, 2% Peterborough, 1% Plymouth, 1% Portsmouth, 0% Reading, 0% Redbridge, 0% Redcar and Cleveland, 0% Richmond upon Thames, 1% Rochdale, 0% Rotherham, 0% Rutland, 0% Salford, 0% Sandwell, 0% Sefton, 0% Sheffield, 0% Shropshire, 0% Slough, 0% Solihull, 0% Somerset, 2% South Gloucestershire, 1% South Tyneside, 0% Southampton, 0% Southend on Sea, 0% Southwark, 0% St Helens, 0% Staffordshire, 1% Stockport, 1% Stockton-on-Tees, 0% Stoke-on-Trent, 0% Suffolk, 2% Sunderland, 1% Surrey, 4% Sutton, 0% Swindon, 1% Tameside, 0% Telford and Wrekin, 0% Thurrock, 0% Torbay, 0% Tower Hamlets, 0% Trafford, 0% Wakefield, 1% Walsall, 0% Waltham Forest, 0% Wandsworth, 1% Warrington, 1% Warwickshire, 1% West Berkshire, 0% West Northamptonshire, 1% West Sussex, 2% Westminster, 0% Westmorland and Furness, 0% Wigan, 0% Wiltshire, 2% Windsor and Maidenhead, 0% Wirral, 0% Wokingham, 0% Wolverhampton, 0% Worcestershire, 1% York, 0%
Do you currently offer funded places to three- and four-year-olds? Yes, the 30 hours (working families) entitlement only, 10% Yes, the 15 hours (universal) entitlement only, 4% Yes, a mix of the universal and working families entitlements, 84% No, 2%
The following 4 questions were asked to those who currently offer funded places to three-and four-year-olds Have you received your three- and four-year-old final funding rate for 2025/26? Yes, 90% No, 10%
[If they have received their funding rate] Is your funding rate: Significantly more than the cost of delivering places, 1% Somewhat more than the cost of delivering places, 1% Slightly more than the cost of delivering places, 3% About the same as the cost of delivering places, 5% Slightly less than the cost of delivering places, 11% Somewhat less than the cost of delivering places, 24% Significantly less than the cost of delivering places, 55%
Over the next 12 months, which of the following actions do you expect to take? Please select all that apply Reduce the number of overall funded three- and four-year-old places you offer, 41% Opt out of the 30 hours (working families) entitlement and only offer the universal 15 hours offer (if applicable), 11% Replace some, but not all, 30 hours (working families) entitlement places with universal 15 hours places (if applicable), 10% Opt out of the funded three- and four-year-old offer entirely, 18% Keep the number of funded three- and four-year-old places you offer roughly the same, 44% Increase the number of funded three- and four-year-old places you offer, 3%
[Asked to those who answered any of the reduce, replace or opt out options in the previous question] What are the main reasons for this? Please select all that apply and briefly explain our response. Impact of new guidance on charging for extras, 87% Impact of national living and minimum wage, 67% Impact of national insurance contribution increases, 59% Lack of sufficient staff, 16% Administration burden of the scheme, 32% Cashflow challenges caused by the local authority's approach to payments, 32% Other (please specify below), 6%
Do you currently offer funded places to two-year-olds? Yes, the disadvantaged two-year-old offer and the working families offer, 88% Yes, the disadvantaged offer only, 1% Yes, the working families offer only, 9% No, 2%
[Asked to those who do not offer funded places to two-year-olds] Why have you decided not to? I / We would like to offer funded places to eligible two-year-olds but are unable to, 43% I / We don't want to offer funded places to eligible two-year-olds, 57%
[Asked to those who said they would like to offer funded places for two-year-olds but are unlikely to be able to] Why are you unable to offer early entitlement places for two-year-olds at your setting? Please select all that apply. Space limitations, e.g not enough space in certain rooms or the setting overall, 25% Staffing constraints, 38% Financial constraints, 63% Other (please specify), 25%
The following 5 questions were asked to those who currently offer funded places to two-year-olds Have you received your two-year-old final funding rate for 2025/26? Yes, 90% No, 10%
[If they have received their funding rate] Is your funding rate: Significantly more than the cost of delivering places, 2% Somewhat more than the cost of delivering places, 9% Slightly more than the cost of delivering places, 17% About the same as the cost of delivering places, 23% Slightly less than the cost of delivering places, 17% Somewhat less than the cost of delivering places, 17% Significantly less than the cost of delivering places, 14%
Over the next 12 months, which of the following actions do you expect to take? Please select all that apply Reduce the number of overall funded two-year-old places you offer, 18% Opt out of the working families entitlement and only offer the disadvantaged 15 hours offer (if applicable), 4% Replace some, but not all, working families entitlement places with disadvantaged 15 hours places (if applicable), 4% Opt out of the disadvantaged entitlement and only offer the working families hours offer (if applicable),3% Replace some, but not all, disadvantaged entitlement places with working families places (if applicable), 3% Opt out of the funded two-year-old offer entirely, 5% Keep the number of funded two-year-old places you offer roughly the same, 66% Increase the number of overall funded two-year-old places you offer, 13%
[Asked to those who answered any of the reduce, replace of opt out options in the previous question]What are the main reasons for this? Please select all that apply Impact of new guidance on charging for extras, 87% Impact of national living and minimum wage, 81% Impact of national insurance contribution increases, 79% Lack of sufficient staff, 28% Administration burden of the scheme, 40% Other (please specify), 12%
Are you planning to increase your funded two-year-old offer for working families from 15 to 30 hours when the scheme extends in September 2025 (including if you are offering stretched across the year)? Please briefly explain your answer. Yes, all two-year-old places will be extended from 15 to 30 hours, 36% Yes, some two-year-old places will be extended from 15 to 30 hours, 17% I / we had previously planned to extend all two-year-old places from 15 hours to 30 hours but now will only extend some, 11% No, I / we had previously planned to but now won't extend any two-year-old places from 15 to 30 hours, 6% No, I / we had never intended to extend any two-year-olds from 15 to 30 hours, 4% Undecided, 26% N/A – I / we don't deliver the two-year-old working families offer, 0% N/A - I / we intend to opt out of the two-year-old offer, 1%
Do you currently offer funded places to under-twos? Yes, 61% No, 39%
[Asked to those to who do not offer funded places to under-twos] Why have you decided not to? I / We would like to offer funded places to eligible under-twos but are unable to, 27% I / We don't want to offer funded places to eligible under-twos, 73%
[Asked to those who would like to offer funded places to under-twos but are unable to] Why are you unable to offer early entitlement places for under-twos at your setting? Please select all that apply. Space limitations e.g not enough space in certain rooms or the setting overall, 65% Staffing constraints, 41% Financial constraints, 27% Other (please specify), 29%
The following 5 questions were asked to those who currently offer funded places to under-twos Have you received your under-twos final funding rate for 2025/26? Yes, 93% No, 7%
Is your funding rate: Significantly more than the cost of delivering places, 21% Somewhat more than the cost of delivering places, 24% Slightly more than the cost of delivering places, 18% About the same as the cost of delivering places, 20% Slightly less than the cost of delivering places, 8% Somewhat less than the cost of delivering places, 5% Significantly less than the cost of delivering places, 4%
Over the next 12 months, do you expect to: Increase the number of funded under-twos places you offer, 26% Keep the number of funded under-twos places you offer roughly the same, 63% Reduce the number of funded under-twos places you offer, 8% Opt out of the funded under-twos offer entirely, 3%
[Asked to those who answered any of the reduce, replace of opt out options in the previous question] What are the main reasons for this? Please select all that apply Impact of new guidance on charging for extras, 87% Impact of national living and minimum wage, 74% Impact of national insurance contribution increases, 71% Lack of sufficient staff, 41% Administration burden of the scheme, 49% Other (please specify), 16%
Are you planning to increase your funded under-twos offer from 15 to 30 hours when the scheme extends in September 2025 (including if you will be stretching the offer)? Please briefly explain your answer. Yes, all under-twos places will be extended from 15 to 30 hours, 41% Yes, some under-twos places will be extended from 15 to 30 hours, 14% I / we had previously planned to extend all under-twos places from 15 hours to 30 hours but now will only extend some, 5% No, I / we had previously planned to but now won't extend any under-twos places from 15 to 30 hours,5% No, I / we had never intended to extend any under-twos from 15 to 30 hours, 1% Undecided, 17% N/A - I / we don't deliver the funded under-twos offer, 0% N/A - I / we intend to opt out of the under-twos offer, 1% Please explain your answer, 16%
Have you received any information from your local authority about additional funding via the early years expansion grant? Yes, 46% No, 55%
How likely are you to take any of the following actions, if any, over the next 12 months?
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