The Three Sides of the Red Box Budget

March 20th 2023

Hurrah, the importance to invest in the Early Years has finally filtered deep into the Treasury and the Chancellor responded in the Budget. So that is the good bit, but let’s unpack what we know of the detail and whether the Chancellor has actually fixed a broken system and set in train planned investment and not a bolt-on funding to achieve political aims.

What we need is a proper strategy that puts children’s and families’ best interests at the centre and creates a ‘childcare system comparable to the best’.

If you don’t already know about Early Years you need to see it as a triangle where all sides MUST support each other equally. The Child: The Parent and The Provider

So, let’s look at the budget announcement in relation to these three sides (but these are just headlines).  The Department of Education (DfE) has been tasked with converting this into policy and I really hope the Department will properly and meaningfully make this happen, along with the sector, so there are no losers.

The Parent

The Budget was designed around growth and how the country helps get parents back to work by making fees more affordable.  Campaigns by Pregnant Then Screwed was hugely influential in getting that message across. To this end, the Chancellor decided to start a reform which will possibly begin from September 2023.  He has agreed to:

  • Top up the hourly rate paid to childcare providers by the Government for free £204m will be available from Sept 2023. This will still not make it free! See below in my loser box.
  • 700,000 families on Universal Credit will get childcare support up front instead of having to reclaim it
  • People on Universal Credit will be able to claim £951 each month for childcare for one child, and £1,630 for two – up from £646
  • From April 2024, working parents of two-year-olds will be able to claim 15 hours of free childcare per week
  • From September 2024 working parents of all children over 9 months will be able to claim 15 hours
  • From September 2025, working parents will be able to claim 30 hours per week for children aged over 9 months until they begin school
  • The Chancellor has allocated £4.1bn to fund the new programme of places beginning next year. (Details very sketchy but early calculations suggest it is just under a £billion short))

So, the intention was to grow, will it work for all parents?





  • Working parents with children aged 9 months to five who will access 15 funded hours which will eventually extend to 30 hours
  • 700,000 families on Universal Credit will get childcare support up front instead of having to reclaim it
  • People on Universal Credit will be able to claim £951 each month for childcare for one child and £1,630 for two – up from £646




The 30-hour policy is designed for “working” families yet many families with parents in work do not qualify. This means the eligibility for the current 30-hour entitlement will remain unequal, with many of the poorest families unable to access this support. Currently just 20% of families in the bottom third of the earnings distribution are eligible. Will families with a parent who is studying continue to lose out? It may make it difficult for parents to get back into the workforce as they need to already be in work to qualify, but often need the extra hours already in place in order to go back to work. We need to check if the new announcements retain the current upper limit where an individual parent can earn no more than £100,000 per year. A family with an annual household income of £199,999 would be eligible if each parent earns just under £100,000, yet many low-income families are ineligible. See the data from the Sutton trust report


The Provider

There was less focus on supply in this growth budget but there were some attempts to do something.

Childminders were supported with a cash incentive to newcomers; £600 for childminders working independently and £1,250 for those joining a Childminding Agency

Wraparound Care:  Schools will share £145m per year to provide Breakfast Club and After-School services

Nursery providers:  Settings currently providing the funded 30 hours to 3-and-4 year-olds were offered £204m to address the current £2.35bn shortfall (now go to Loser section for the detail)

So, while the budget will drive up the demand for Early Years places, it’s far less clear how Ministers intend to ensure adequate supply, especially at a time when settings are closing at record levels and staff are leaving the sector in their droves.



I am struggling a bit here to find a winner.  Maybe we can put the childminders into the winner category?




To meet the demand of providing places for two-year-olds  from April 2024  and babies over 9 months from Sept 2024 to access 15 funded hours and then 30 hours from September 2025 we need an estimated 38,000 new staff. In a sector already facing a minimum 21% staff turnover, there was nothing in the budget to help us build up these numbers in a week when Aldi increased its hourly rate to £12.35 per hour.

There was an 87% increase in the numbers of nurseries closing down last year compared with 2021. These closed nurseries cared for around 5,656 children who were left having to find an alternative places.  See here the data from the NDNA report

The sector is currently £2bn short of the actual cost of delivering the funded places (£2,35bn if you add inflation). This calculation was elicited from the DfE in 2020 by the EYA using an FOI. The budget figure of £204 million will increase the funding rate by 8.6% (if you take inflation into account) and 10% if you don’t. That still leaves us 90% short to manage our income. The average nursery’s wage bill has already shot up by 14% according to NDNA. Coram’s report says that only 48% of local authorities in England have enough childcare for parents working full time – an 11% drop from last year and less than one in five (18%) local authorities in England have enough childcare for disabled children. Link to the Coram report

According to the NDNA, the average setting loses more than £32,000 a year for their 15-hour funded places for three-and four-year-olds. This figure can be doubled for nurseries with children on the 30-hour offer  The estimated funding shortfall for 3 & 4 year-old places is £2.31 per hour, up from £1.87 in 2021.


The Child

Staff:Child ratios

The Chancellor has changed ratios for toddlers (2 to 3 year old) from 1 staff member to 4 children to 1 to 5.  He has done this as another tool in his growth strategy as he thinks it will drive down fees. He ignored the consultation the sector responded to last year which, according to the DfE, had a robust response and only 7 to 12% of settings said ratio changes would reduce any costs to parents. So, consultation counts for nowt!

We can use this change to ratio as optional but that’s gives little comfort for those staff and children where those changes will be implemented. Also, are all the financial calculations for funding rates going to calculated on the 1 to 5 ratio?



Wraparound care:  We know  it is good if children’s health and wellbeing can get a healthy breakfast and tea after school. LEYF EYA report




Children lose out when the focus is only on parents returning to work with no focus on their care and education. Expansion of places without reforming the childcare system will drive down quality and just be piecemeal reform.

Our more disadvantaged children (those in the lowest 40% of the income distribution) lose out if they are not accessing the best quality education. Quality is structural and pedagogical.

Ratios that are low are best and quality is delivered when staff are, experienced, qualified, well rewarded and appreciated. The budget paid no attention to this.


Next Steps

Most of the Chancellor’s budget won’t come into full effect until after the next election. Call me cynical!  That means we must continue to push for a strategy that addresses all three sides of Early Years. Addressing growth through demand and ignoring supply will lead to disaster. Childcare is not simply a labour market tool. Children need to be centre of the policy and must not be the losers. Quality matters as much as availability.  We must also be alert to the Government becoming the monopoly purchaser of places.  Up to now we had more freedom to flex our fees so we could deliver more places.  In the case of LEYF we flexed the fees to ensure 35% of places went to children from more disadvantaged families. What happens when the Government purchases the majority of places through the funding system and then locks the funding at too low a rate?  What will happen to the sector?  Will we simply become an underfunded arm of the welfare state?

Do you think I am being too pessimistic?  Write to me or follow me on twitter so we can share views.  We really must pull together!



Here is a list of press regarding the Childcare Budget for ease: