The current funding available is “spread too thinly”, prioritises working families, and is not helping children from disadvantaged backgrounds as well as it should be, according to two think tanks.

The report, from the Joseph Rowntree Foundation and Coram, suggested the Government’s proposals to expand the childcare system may make the current situation worse.

Most families will be able to benefit from 30 free hours of childcare from September 2025 for all children, aged from nine months. The extension was first announced in the Spring Budget and it will be phased in, starting in April 2024.

It doesn’t apply to all families though, and there are requirements that parents must earn a minimum of £152 week and not earn more than £100,000 annually to qualify.

Today’s report is calling for several changes to the system to tackle the issue of children from disadvantaged backgrounds starting school behind their peers as their parents struggle to afford childcare.

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To help all parents, not just those who are eligible for the current free hours, it stated a new universal system needs to be introduced. This would give all children 15 free hours of childcare per week at the age of two, and 30 hours at the age of three and four.

A ‘childcare entitlement’ should also be brought in which guarantees every family the childcare they need, in the same way that children are guaranteed school places.

The organisations recommend a series of changes to the system including making high-quality childcare accessible to all families, one payment system for all parents, and measures to support children’s development holistically if they do not attend a childcare setting.

‘Disadvantaged pushed to the sidelines’

Neil Leitch, CEO of the Early Years Alliance, said: “Not only are provider numbers plummeting at an alarming rate but, as the report shows, children from disadvantaged backgrounds – those that will benefit the most from early education and care – continue to find it extremely challenging to access. Put simply, it is completely unacceptable.

“Families from disadvantaged backgrounds should be at the heart of any early years policies but for years they have been pushed to the sidelines and, as the research shows, this oversight is having and will continue to have serious repercussions on their development, unless proper action is taken.”

It comes as a separate report from the Department for Education (DoE) revealed that 10% of early years providers indicated it was likely that they may close in the next six months because of rising costs. It also revealed that 47% of providers said their income was not sufficient to cover their costs. This is a rise from 35% in winter 2021.

While 80% of providers said they had made at least one change to manage their finances because of higher costs, 62% said they had increased their fees.

One million missing out on Tax-Free Childcare

The report comes as figures from the Government revealed that 649,935 families used the Tax-Free Childcare system in 2022/23, a rise of more than 137,500 in a year according to HMRC.

The system tops up money put into a Government account by parents and carers, to a maximum of £2,000 per year. This money can then be used to pay for childcare services.

While numbers using Tax-Free Childcare is up, around 1.3 million families are eligible for the benefit, according to Government data from 2021. This means that around half of families who could use the Tax-Free Childcare system are not.

Victoria Atkins, the financial secretary to the Treasury, said: “While thousands more working families are benefitting from Tax-Free Childcare, which is making a real difference to their childcare bills, many more are missing out on the help they’re entitled to.

“Parents should check their eligibility and apply online; the top-up could make a big difference to working families at a time they need it most.”