Question to the Department for Education:

To ask the Secretary of State for Education, with reference to the the free childcare hours announced in the Spring Budget 2023, HC 1183, published on 15 March 2023, what estimate her Department has made of (a) the average hourly rate per child aged 3 and 4 years old that will be payable to childcare providers under that scheme and (b) the average hourly cost to providers of providing that childcare.

At the 2023 Spring Budget, my right hon Friend, the Chancellor of the Exchequer announced that the hourly rates for the entitlements will be substantially uplifted. This is on top of additional investments announced at the 2021 Spending Review.

The department will provide £204 million of additional funding from September 2023, increasing to £288 million by 2024/25, for local authorities to further increase hourly rates paid to childcare providers, with further uplifts to follow each year. This will include an average 30% increase in the 2 year old rate from September 2023 and means that the average hourly rate for 2 year olds will rise from the current £6 per hour in 2023/24 to around £8 per hour. The average 3 and 4 year-old rate will rise in line with inflation to over £5.50 per hour from September 2023, with further uplifts beyond this.

This funding is in addition to the £4.1 billion that the government will provide by 2027/28 to facilitate the expansion of the new free hours offer. Under this offer all eligible working parents in England will, by September 2025, be able to access 30 hours of free childcare per week, for 38 weeks of the year, from when their child is 9 months old to when they start school.

Average hourly rates for the 2023/24 financial year, not including the uplifts from September 2023 announced in the 2023 Spring Budget, were published on 16 December 2022 and are reproduced in the table below.

The ‘Providers’ Finances: Survey of Childcare and Early Years Providers 2021’ shows that the mean unit cost for all providers was £4.51 per child in 2021, with the median unit cost being £3.21 per child. This was a 12% increase in mean unit costs and 16% increase in median unit costs from 2019, representing an average 6% and 8% year-on-year increase. More recent data is not yet available.

Notes on the average hourly funding rates:

1. 1 Part Time Equivalent (PTE) is equivalent to 15 hours of childcare.

2. National average hourly funding rates are subject to change when allocations are updated to make use of Jan 2023 PTEs and Jan 2024 PTEs, i.e., if these have different PTE distributions between local authorities.

3. For 2023-24, the 3- and 4-year-old entitlement average funding rate is made up from a Universal Hours average of £5.31 and an Additional Hours average of £5.23. Both these entitlements are funded on the same Early Years National Funding Formula (EYNFF) funding rates at LA-level, but they have different PTE distributions between LAs, e.g., Universal Hours has a higher proportion of total PTEs in London LAs, which leads to different national averages. These figures are based on indicative allocations.

Note on provider finances data:

1. Unit cost is defined as the average cost per child per hour for all children of all ages in the setting, derived as the total weekly cost divided by an estimate of the total number of child hours per week.