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05 Jun 2023

Hot Take: Underspending: Where is all the money going?

Hot Take: Underspending: Where is all the money going?

The UK childcare system is facing another incredibly difficult year and relies heavily on any financial support available from the government. With this in mind, NMT editor Briony Richter explores the latest underspend findings

During the Spring Budget, Chancellor Jeremy Hunt acknowledged the significant strain that the cost-of-living crisis was having on the early years sector and workforce. To tackle this he set out a three year staggered approach, which he claims will help providers prepare in time. 

While we have to wait until the Autumn of next year for the first phase to begin, a Freedom of information request (FOI) submitted by the National Day Nurseries Association (NDNA) has revealed current significant underspending figures. 

More than 90 of the 150 local education authorities that responded underspent to the astonishing amount of almost £46m last year.


A Freedom of Information (FOI) request to all local education authorities (LEAs) in England asked whether they had overspent or underspent their early years funding allocation for places in 2021/22.

Overall, NDNA discovered that £46 million of early entitlement funding was unspent by 92 councils, with 37% using this money (£15 million) to offset deficits within their Designated Schools Grant. 

Purnima Tanuku, chief executive of NDNA, said: “This is our fourth year investigating underspends in early years funding and once again, the results are shocking.

“Lessons still aren’t being learnt, with too much of the funding meant for early education and childcare places being used to offset other deficits or put into reserves. Almost half of those who reported an underspend have done so since we started looking into this four years ago.

“The same thing keeps happening year-on-year. Of the 15 councils who had more than £1 million underspends this year, four of them have been in this position for three of the last four years.

“We are also concerned at the number of local authorities who are overspending, particularly those with huge overspends. Providers are now being penalised as councils have no choice but to recoup their losses from future funding. Three-quarters of councils with overspends had a low funding rate, which could help to explain how they ended up in this position.”

Key findings include: 


  • 62% (92) of LEAs who responded underspent their EY funding by £45.8m
  • £15m of this went into council reserves (30 LEAs) and only 11 LEAs gave all or some back to providers (£7.8)
  • 15 LEAs reported an underspend of more than £1m – one of these has underspent by £1m for four years running; four other LEAs have underspent by £1m in three of the last four years
  • 46 LEAs overspent their over early years budget by £23.1m
  • Since the investigations began in 2018, NDNA has uncovered underspends of £229m
  • Surrey reported a cumulative underspend of £10.4m over the last four years; three other LEAs Islington (£7.6m), Hertfordshire (£6.8m) and Leeds (£6.4m) had huge cumulative underspends over £5m.
  • 72 LEAs reported an in-year negative adjustment by DfE of £89m
  • Total clawbacks (negative adjustments) was £99m
  • Total positive adjustments was £37.7m
  • Net DfE adjustment figure was -£59.3m.

The system is on the brink

The government needs to understand that many nurseries can’t wait until its three year childcare plan begins; help is needed now. The next 12 months will be critical for the sector’s recruitment and workforce prospects.

Purnima Tanuku added: “The government regularly shout about how many millions they have invested in early years funded places and yet we see that over £105 million has not reached providers on the front line.

“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.

‘We need a transparent and clear system that has children at its heart and works for both parents and providers, in which we know what money is going where.”


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