Two Systems, One Instrument
The early years entitlement is one funding rate doing two different jobs, and the point where it turns against a provider has never been published. This paper went into the Department for Education’s consultation on the entitlements funding system on 17 August 2026.
The rate is not uniformly too low. On the median differentials in the 2025 Survey of Childcare and Early Years Providers, it pays £3.54 an hour above what parents pay for under-twos and £1.13 above at two, and £0.94 below for three and four-year-olds. One instrument, two directions.
That means a nursery’s funding position is set by something it does not choose. Age mix. Take the published differentials and there is a point where a setting’s funded book stops adding and starts subtracting. Across all providers it falls once over-threes pass 73% of funded hours. For private group-based providers, the type delivering most of the sector, it falls to 44%, because every one of their three differentials is weaker and the £1.98 over-three shortfall most of all.
How many private nurseries sit the wrong side of 44% is not published. The survey that produces those differentials could report it.
Underneath that sits a calendar problem. The rate is denominated on 38 weeks. The department’s own survey puts the median private group-based provider open 51 weeks a year, against 38 for nursery classes and voluntary settings. Neither national formula carries a factor for it. Government already prices operating pattern when it bills a nursery, through Ofsted’s registration fee bands, and not when it funds one.
The paper asks for two things, both cheap and both answerable. Publish the weeks-open data the department already collects. Add operating pattern to the provider cost survey it has said it will run ahead of 2028-29. Then set the rate against a published cost base, independently.
On method. Every figure is drawn from published work by the Department for Education, the Institute for Fiscal Studies, the House of Commons Library, Coram and named trade bodies. The calculations built on them are identified as calculations and set out in a method note. The benchmark throughout is median parent-paid fees, which is a price and not a measured cost, and the paper says so.
Download the paper (30 pages, PDF)
Litus Advisory Ltd advises early years operators and their investors, and the author co-owns a single-site nursery. No client, investor or trade body commissioned or funded this work.
