Unintended Consequences: How New Childcare Funding Reforms Threaten Quality, Access, and Parental Choice
The Department for Education extended Early Years Funding to help more families return to work. However, restricting the flexibility in how these funded hours are delivered may reduce options for working parents and risk becoming a barrier to employment.
At KatieB Kids, we remain committed to delivering high-quality, child-centred care. We have always prioritised transparency with families, offering a range of options to help parents access their funded hours. At the same time, as an employer of 21 dedicated staff members, we continue to work hard to ensure the long-term sustainability of our setting in the face of growing financial pressure.
On 21 February 2025, the government introduced updated statutory guidance for local authorities, bringing significant financial implications for early years providers. Despite the scale of these changes, nurseries were given just six working days to revise their business models, with Kent County Council offering minimal notice or support.
Nurseries are legally required to cover essential operational costs, including staff wages, sick leave, training, insurance, property expenses, utilities, and safeguarding. A funding-only business model leaves little room to meet these obligations, ultimately reducing the quality and availability of early years provision. This risks limiting opportunities for children and families, while placing additional pressure on schools, teachers, and wider society.
If faced with reduced budgets and a shrinking, under-resourced workforce, we would anticipate the following consequences:
Reduced School Readiness and Increased Pressure on Schools
Less Prepared Children: Due to reduced staffing and resources, children will leave us with diminished resilience, impacting their readiness for school. Key areas of support, including opportunities for risky play and emotional regulation activities. Activities which foster independence, emotional resilience, and physical well-being, may no longer be consistently available, leaving children less prepared for the challenges of school and life in general.
Limited Support for Children with Special Educational Needs (SEN): Children with SEN may not receive the additional support they need beyond basic reasonable adjustments. As a result, many will start school without the foundational skills required to succeed in a classroom environment. Delays in early identification mean that funding applications for essential support may not be submitted in time. This places significant pressure on teachers, who are expected to meet a wide range of complex needs within classrooms of up to 30 pupils — often without adequate resources or support.
Decreased Parental Support and Confidence: Parents may begin their child’s school journey with less knowledge and confidence in key areas that support parenting and early child development. As a result, schools may face increased pressure to provide guidance or make referrals to external services such as GPs, health visitors, Family Hubs, safeguarding teams, and dental services. This adds to the already significant responsibilities placed on school staff and stretches support systems further.
The cumulative impact of these challenges will place additional pressure on already underfunded schools and overstretched teaching staff. The teaching profession is already facing a workforce crisis; these changes will only exacerbate the strain, compromising staff well-being and their ability to meet the expectations placed upon them.
Reduced Flexibility for Working Parents
Families entitled to 30 hours of funded childcare can currently access up to 8 hours per day over 48 weeks. This 8-hour block of funded care, while guaranteed, often does not align with most parents’ work schedules, leaving insufficient time for commuting and a full working day. However, without a guaranteed income for additional hours or flexible start and finish times, availability of nursery places outside of these hours will depend on weekly staffing levels, making it uncertain in advance.
Furthermore, 8 hours a day of funding stretches the 38-week entitlement over 48 weeks, with the nursery closing for 4 weeks a year when staff would take their annual leave. This may not always align with employers’ expectations of annual leave, forcing parents to find alternative childcare for these weeks.
With the new legislation nurseries offering funding without additional fees can only afford to deliver a basic service. Parents will lose their ability to choose a setting that values quality enhanced services to use their funding, and to pay a premium for this.
Additionally, a funding-only model would not cover food costs, meaning parents would need to provide a packed lunch and snacks each day, adding extra pressure.
Reduced early years opportunities for children
If we were to move to offer a funded only model of childcare, our income would reduce by 33%. In this scenario we would be compelled to cut costs, which will inevitably lead to reduced staffing and a reduction in the enrichment opportunities we currently provide which include:
Forest school
Local trips (e.g., to the playground)
Our ‘Dots’ mindfulness programme for children
Yoga sessions
Baking
Gardening and growing
Project work
Woodwork and risky play
These activities, which are essential for developing children’s creativity and resilience, would no longer be sustainable.
Additionally, intensive interaction sessions for children with Special Educational Needs (SEN) would be limited to the additional funding received, significantly reducing the support available for these children.
The reduced budget would also impact staff development and wellbeing. Only mandatory staff training would be covered, resulting in the loss of:
Monthly mindfulness and wellbeing support for staff
Disability Confident Employer training
Equality, Diversity, and Inclusion (EDI) training
Professional development days
Appraisal-aligned training budget
Commissioned leadership programme
SEN-specific training and support for all staff
Staff enrichment activities
Furthermore, the budget would no longer allow for the provision of termly celebrations, children’s Christmas and summer parties, home visits, coffee mornings, detailed handovers, or weekly and monthly bulletins. Our creative installations, which 'wow' the children, would also be removed, limiting opportunities for children to be engaged and inspired by their learning environment.
The bigger picture
Childcare and early education aren’t just about the children; they are key to helping parents work and keeping the economy strong.
Business spending is a key driver of economic activity and therefore forcing an entire industry to reduce their payroll and operating costs can only have negative impacts. Nurseries spending less on local suppliers and services will impact on other businesses within the community. With very low or non-existent profits there will be reduced tax revenue for public services like education and healthcare. Cutting spending means reducing investment in research and staff development, stifling innovation and productivity.
Our nursery exists to provide high quality early years education through a child led approach. Limiting provision and opportunities for children does not align with our ethos and values. We would not re model our business to reduce standards; and we are not alone. Neil Leitch, from the Early Years Alliance, confirms that their research suggests many providers are choosing to limit their funded places, or opt out of the offers entirely, "due to unsustainable financial pressures". About 185 nurseries out of 1,100 surveyed by the charity said they were "likely" to opt out of the scheme entirely within the next 12 months.
Should providers withdraw from funding, the number of funded childcare spaces available through local authorities is likely to decline, putting councils at risk of falling short of their statutory duty to provide sufficient childcare.
Funding Shortfalls and Nursery Closures
The National Audit Office has identified a need for 85,000 additional early years places by September 2025. However, data from Ofsted and the National Day Nurseries Association (NDNA) show a continued net loss of nurseries and pre-schools nationwide.
Since the introduction of 30 hours of funded childcare for working families of 3–4-year-olds in 2017, there has been a consistent trend of nursery closures—particularly in deprived areas where settings rely almost entirely on government funding.
NDNA Chief Executive Purnima Tanuku OBE explained that when 80% of a setting’s income comes from government-funded hours, unsustainable funding rates make it difficult for providers to stay open.
NDNA research shows that 199 nurseries closed between September 2023 and the start of this academic year, following 216 closures the previous year. With an average of 50 children per setting, these closures have potentially affected over 10,000 children.
Quality Early Years Provision Is Essential for Lifelong Outcomes.
Research consistently shows that a child's early experiences have a profound and lasting impact on their development. High-quality early years settings not only support learning and development but also play a vital role in identifying special educational needs (SEN) at the earliest stage. Nurseries often provide essential support for both the child and their family. The government has acknowledged the critical role of early years practitioners in this area through the revised 0–25 SEND Code of Practice.
Ongoing Challenges Threaten the Sustainability of the Early Years Sector
The early years sector has faced long-standing challenges, including chronic underfunding, a worsening recruitment crisis, and escalating operational costs. Staffing costs alone are rising by approximately 15% annually. Small providers like ours will need to find an additional £30,000 this financial year just to cover the increases to National Insurance Contributions (NIC) from April 2025. Meanwhile, the planned expansion of funded hours from September is set against a maximum increase of only 4.6% in the funding rate — a disparity that risks deepening the financial strain on already struggling settings.
Early years providers want to give children the best start whilst supporting families, and a staff force. We ask for a review of current early years policy