Popularity of new childcare entitlements could leave spending much higher than initially forecast

At the 2023 Spring Budget, then-Chancellor Jeremy Hunt announced the largest-ever expansion of publicly funded childcare entitlements, offering new entitlements for working families with children aged 2 and younger. By September this year, families where all adults are in paid work will be entitled to the equivalent of 30 hours a week of term-time childcare for all children between 9 months and the start of school.

Once fully rolled out, these new entitlements will reshape England’s early years system. Based on the costings in the 2023 Budget, we had forecast that total spending on the free entitlement in 2026–27 would be almost 85% higher in real terms than in 2018–19, after the last big expansion (and more than four times as high as in 2009–10). The share of that spending targeted at working families was also set to double, from 30% in 2018–19 to almost 60% in 2026–27.

But spending so far has ended up much higher than those initial allocations – and, if take-up stays near its current levels, the additional spending needed will rise further next year. Spending from next year onwards could easily end up £1 billion higher than had been anticipated at the March 2023 Budget.

A boost to funding announced in yesterday’s Spending Review will go some way to filling this gap, with about £640 million of additional funding (above what was implied by the continued roll-out of the policy). But that could still leave substantial pressure from higher-than-expected take-up.

Big in-year revisions to spending plans for 2024–25

Spending on the new entitlements has already been much higher than the Department for Education expected 18 months ago. In December 2023, the DfE published its initial plans for funding in the 2024–25 school year via the Dedicated Schools Grant (DSG). DSG plans are revised several times throughout the year, with more information about take-up becoming available over time.

For established childcare entitlements, these in-year revisions are usually fairly small. But predicting how many children will take up a new programme of entitlements is complex: there is uncertainty over how many families are eligible, uncertainty over how many families will choose to move into paid work so that they become eligible, and uncertainty over how many families will choose to take up new entitlements (and for how many hours).

Even so, the revisions to the 2024–25 Dedicated Schools Grant are substantial. The take-up numbers reported in March 2025 were 26% higher than the initial estimate from December 2023. As Figure 1 shows, this meant that spending on the new entitlements last year was almost £440 million – 28% – higher than had been budgeted for, driven mostly by an almost 50% increase in planned spending on the entitlements for under-2s. Slight underspends in other areas meant that the total early years block came in £315 million (5%) higher than had been originally predicted.

Figure 1. Change in Dedicated Schools Grant budget for 2024–25, from first publication (December 2023) to latest (March 2025)

_{Note: ‘Other supplements’ includes funding for the Early Years Pupil Premium, Disability Access Fund, and Maintained Nursery School supplementary funding. Chart compares the initial budget for 2024–25 (issued in December 2023) with the latest update (March 2025). Negative numbers indicate that the current budget is smaller than the initial estimate; positive numbers indicate that the budget has increased compared with the original version. Data labels show the percentage over- or under-estimate in December 2023.}

_{Source: Author’s calculations using DfE, ‘Dedicated schools grant (DSG) 2024 to 2025’, December 2023 and March 2025 versions.}

Figure 2 shows how the predicted take-up numbers for 2024–25 changed between the December 2023 initial budget and the March 2025 final version, for different local authorities in England.

Across much of the country, there have been substantial upward revisions to take-up of the new entitlements. Six local authorities – Leicestershire, Cambridgeshire, Dorset, Bath and North East Somerset, Westminster, and North Somerset – revised their expected take-up by more than 50%.  

Within London, there is a different story at play. Of the nine local authorities where expected take-up fell between December 2023 and March 2025, seven are in London. London also has the lowest share of eligibility codes validated – 84% of families who had applied for and been issued a childcare code in Summer 2025 had successfully secured a childcare place, compared with a national average of 90%. This could indicate that some parents in London are struggling to find childcare places to take up their entitlements (though some parents will also choose not to use the entitlements after securing an eligibility code, so take-up will never be complete on this metric).  

Figure 2. Percentage change in predicted take-up of the new entitlements in 2024–25, from first publication (December 2023) to latest (March 2025)

_{Note: Map shows the percentage change in expected take-up of the new working families entitlements for 2024–25 between initial estimates (December 2023) and latest estimates (March 2025). Areas where expected take-up has fallen (an initial over-estimate of take-up) are shown in green; other areas had an initial under-estimate. Greater London is shown separately for visibility.}

_{Source: Author’s calculations using DfE, ‘Dedicated schools grant (DSG) 2024 to 2025’, December 2023 and March 2025 versions.}

While higher-than-expected take-up of the new entitlements across most of the country drives up the costs of the policy, it might also have a silver lining. If high take-up reflects more parents moving into paid work, that will be good news for the government’s growth mission. But it is still too early to tell how much of this higher take-up is driven by higher employment, and how much comes from parents who were already working choosing to use more (formal) childcare.

Childcare spending is set to rise (even further) in future years

Because the new childcare entitlements are being rolled out over time, the impact of persistent higher-than-expected take-up will grow between 2024–25 and 2026–27 (the first full year that the entitlements are fully rolled out) as the number of hours covered by the entitlement rises.

Given what we know about current take-up rates and funding per hour, we can forecast what spending might need to be in future years. This is not a perfect science; there are still big unknowns both about the level of take-up and about the per-hour funding rates that the government will choose. We consider four scenarios, defined by interactions between funding and take-up levels.

For funding, we consider a ‘low’ scenario (where current funding rates are frozen in cash terms) and a ‘high’ scenario (where funding per hour is protected in real terms).

For take-up, we take as a starting point the part-time equivalent places used in the 2025–26 DSG. We calculate take-up rates as a share of the population aged 9 months to 2 years (rather than as a share of the eligible population living in working families, which we do not know). We then adjust these to reflect the mechanical impact of the more generous entitlements in 2026–27.1

We use two different scenarios for take-up rates. Our ‘low’ take-up scenario assumes that take-up rates from 2026 onwards will be the same (relative to population) as take-up rates for the whole of 2025–26, after correcting for the mechanical impact of increasing entitlements. Our ‘high’ take-up scenario assumes that future take-up rates will be the same as take-up from September 2025 to March 2026, the period when 30-hour entitlements will first be in place. Take-up rates are expected to be higher once the 30-hour offer is brought in, in large part because impacts on employment are expected to be much stronger under a 30-hour offer.

In both cases, we account for changing population using the Office for National Statistics (ONS)’s latest population forecasts. We do not do anything else to adjust expected take-up rates: for example, we do not assume that take-up rates rise beyond March 2026 (which might happen if the programme beds in – for example, further childcare places become available in areas where there is unmet demand, as may be the case in London – and more parents move into paid work). In practice, this means that take-up could end up even higher than what we forecast here.

Table 1 summarises how much would need to be spent on working family childcare entitlements for the under-3s across England in 2028–29 under each of these scenarios. If the government chooses to protect hourly funding rates in real terms, it could spend between £5.0 and £5.3 billion in 2028–29 (in today’s prices) on the new entitlements. Choosing to instead impose a cash-terms freeze in hourly funding rates would save about £300 million under either scenario, but would imply a 5.5% real-terms cut to childcare providers’ resources.

Table 1. Forecast spending on new childcare entitlements in 2028–29 (2025–26 prices)

_{Note: ‘Low funding’ scenario assumes cash-terms freeze in current (2025–26) per-hour funding rates. ‘High funding’ scenario assumes real-terms freeze in per-hour funding rates. ‘Low take-up’ scenario is based on take-up across the whole of 2025–26. ‘High take-up’ scenario is based on take-up just from September 2025 to March 2026, when new entitlements are fully in place. Both take-up rates account for the mechanical effects of increasing entitlement hours as well as changes in population (but not further behavioural responses beyond March 2026).} 

Spending Review top-up will ease – but probably not eliminate – future pressures

In Figure 3, we compare spending on the new entitlements – based on budgets for 2024–25 and 2025–26 as well as our low take-up, high funding scenario – against the resources initially allocated in the 2023 Budget to deliver these entitlements.

Figure 3. Spending on working families childcare entitlements for the under-3s

_{Note: Forecasts shown in lighter shades. Budget 2023 numbers only run to 2027–28; a flat real-terms profile is assumed thereafter. ‘Actual/forecast spending’ comes from the latest editions of the Dedicated Schools Grant for 2024–25 and 2025–26. Forecasts assume that current expected take-up rates for 2025–26 persist in future years (with allowances for changing population numbers but no additional assumptions around changes to take-up rates). Per-hour funding rates are assumed to remain flat in real terms. Assuming instead that take-up rates remain at their predicted level once the 30-hour entitlements commence leads to estimated spending of £5.3 billion in 2027–28 onwards.}

_{Source: Author’s calculations using March 2025 version of Dedicated Schools Grant (2024–25 and 2025–26) and latest (2022) ONS population projections, along with March 2025 GDP deflators.}

A reasonable forecast for spending on the new entitlements, based on current estimates of take-up, could see spending end up £1 billion higher from next year than had initially been planned in the March 2023 Budget – an increase of a quarter on the initial estimate.  

Presumably in recognition of this, the June Spending Review announced a top-up to childcare spending, amounting to a cash-terms rise of £1.6 billion between 2025–26 and 2028–29. Most of this is driven by pre-existing plans to increase spending as the new entitlements are rolled out.

But the Spending Review announcement does offer a genuine, and substantial, top-up over what had been set out in Budget 2023. Relative to keeping spending in 2028–29 at the same real-terms level as the year before, the announcement adds an additional £640 million in 2028–29.

This goes some way to recognising the spending pressures that result from higher-than-expected take-up, though may not fully close the gap between the initial Budget 2023 plans and the current allocation from HM Treasury. But it still implies that the DfE will have to make difficult choices, either within the childcare budget or trading off this spending against other priorities.

And – for a department tasked with delivering the Opportunity Mission – there is a particular irony here. The new childcare entitlements look much more like a policy to boost growth than one that is focused on boosting disadvantaged children’s life chances. Extra funding to protect the delivery of these entitlements will be welcome, and will ease pressures elsewhere. But to the extent that a shortfall remains, the DfE might end up in the unenviable position of trimming back its spending on wider ‘opportunities’ programmes such as Family Hubs (for which no specific funding was announced yesterday), in order to meet its childcare commitments in support of growth.