MPs have expressed concern that local authorities in England are failing to pass on government funding for free childcare places to nurseries, after research showed councils were holding back millions of pounds to offset deficits or add to reserves.

Freedom of information requests submitted by the National Day Nurseries Association (NDNA) revealed that more than 90 of the 150 local education authorities that responded underspent to the tune of almost £46m in total last year.

Fifteen LEAs underspent by at least £1m each, while five of those underspent by a similar amount in two of the previous three years. The NDNA calculated that over the past four years there had been a £229m underspend of funds intended for providers of free childcare.

The issue was raised on Tuesday by MPs on the education select committee who are holding an inquiry into support for childcare and the early years, looking in particular at the government’s plans to extend free childcare, announced in the spring budget.

Currently, parents in England who work more than 16 hours a week and earn less than £100,000 are entitled to 30 hours’ free childcare a week for children aged three and four.

There are different schemes in place for Scotland, Wales and Northern Ireland.

The government has promised to expand the scheme to offer places to working parents of all children over the age of nine months. Providers have long complained, however, that the scheme is chronically underfunded. The fact councils are not passing on all funding provided by the Department for Education is a source of additional frustration.

Claire Coutinho, the minister for children, giving evidence to the committee, acknowledged it had been a challenging time for the childcare sector, but said the government was putting in an additional £4bn to fund its childcare policies.

She told MPs that current guidance allowed councils to top-slice 5% of the funding from government, to allow flexibility for children coming into the system at different times. She said the department saw returns showing how much funding councils were retaining, and “on average it’s less than 5% at the moment. It’s something we keep a careful eye on but the vast majority is passed on and is well spent.”

Purnima Tanuku, the NDNA chief executive, said: “This is our fourth year investigating underspends in early years funding and once again, the results are shocking. NDNA has been calling for this money to be ringfenced so it can only be used for early years places.

“At a time when providers will be under pressure to get ready to deliver funded places for all two-year-olds in less than a year’s time, they should be better supported by councils. This system needs fixing and reforming now if the early years sector is going to have a hope of delivering the government’s new plans.”

The Local Government Association, which represents local authorities in England and Wales, said its members fully understood the financially challenging situation providers were in, and were doing what they could to support them.

“However councils often face challenges in relation to when money is received from government and have to manage this to ensure providers receive funding. Where this is an underspend, this is also often reallocated according to local need, such as to support children with additional needs, so the money is still invested in early years provision.”


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