The UK government funds early years childcare through the Early Years National Funding Formula (EYNFF), which sets hourly funding rates paid to local authorities and then passed to nurseries. These rates vary by age group and area, and they are often presented as the foundation of ‘free childcare’, but they do not cover the full cost of delivering high-quality care. 

According to the Department for Education’s funding tables for 2025–26:
   •   The national AVERAGE hourly funding rate for 3- and 4-year-olds is £6.12. This takes into account the higher rate for London boroughs however – the mean average outside of that area is closer to £4.85
   •   For two-year-olds, it’s £8.53 per hour (again less in most areas)
   •   For under-2s, the average rate is £11.54 per hour (again, closer to £9 in areas outside of London)

These figures may look reasonable in isolation, but when you compare them to the real costs of staffing, premises, overheads, consumables, and statutory requirements, the gap is stark.

Official research from the Department for Education’s own provider surveys shows that many settings can’t cover their costs:
   •   More than half of providers reported that their income did not cover their costs in the 2024–25 early years period.
   •   In autumn 2024–25 ‘Pulse’ surveys, 48% of group-based providers said funding rates made additional funded places not worthwhile, and many settings reported ongoing staffing shortages and high vacancy times. 

This official data clearly shows that funding is not aligned with real market costs – a finding reflected in independent sector research as well.

Below are the significant operational costs that government funding does not fully cover, despite these being essential to running a childcare setting:

1) Leadership and Management

There is no separate funding uplift for setting managers, directors, or leadership time. Every funded hour is calculated on the assumption that staff time contributes to ratios, not to leadership, planning or oversight. Yet leadership is essential for safeguarding, compliance, quality assurance and day-to-day decision-making.

2) Finance and Administration

Government funding doesn’t explicitly cover:
   •   bookkeeping and payroll
   •   funding claims
   •   invoicing and debt management
   •   reporting to Local Authorities or Ofsted

This administrative burden is often absorbed by managers and practitioners – unpaid or squeezed into hours already dedicated to child contact time.

3) Premises, Safety, Maintenance and Compliance

Funding pays only for ‘care hours’ not
   •   planned and reactive maintenance of buildings
   •   fire safety or risk assessments
   •   health and safety compliance
   •   upgrades required by regulation changes

Nurseries lease or run buildings that require continual investment – costs that cannot be met by hourly funding alone.

4) Cleaning, Hygiene and Refuse Disposal (Including Nappy & Sanitary Waste)

Cleanliness and waste management are statutory requirements, especially important in early years settings.

Yet funding does not adequately cover:
   •   daily cleaning
   •   deep cleaning and infection control
   •   cleaning materials and equipment
   •   contracted refuse disposal services
   •   specialist nappy and sanitary waste disposal

These are recurring, unavoidable costs, and licensed waste disposal (e.g., for nappies and adult sanitary bins) carries its own regulated cost that nurseries must absorb or pass back to parents.

5) Staff Pay, Holidays, Sick Pay and Pensions

The government’s funding rates are meant to contribute toward staffing costs, but they don’t include
   •   fully funded paid annual leave
   •   statutory sick pay
   •   employer pension contributions beyond the minimum
   •   parity with other early years professions

According to the Early Years Alliance’s sector evidence, 63% of early years staff considering leaving the sector cited low pay and feeling undervalued,
indicating that funding fails to support sustainable careers. 

6) Training, CPD and Qualifications

Ongoing training (e.g., child protection, SEND, specialist skills) is mandatory and essential, but funding doesn’t offer separate provision for this, nor does it cover the lost ratio hours when staff train.

7) Learning Resources and Enrichment Activities

Nurseries are inspected on the richness of their curriculum, yet funding covers only baseline care hours, not:
   •   diverse resources
   •   specialised teaching materials
   •   visitors and trips
   •   creative and sensory resources

These items are typically paid for by parents, because funding simply doesn’t stretch that far.

8) Inclusion and Additional Needs Support

Supporting children with additional needs (SEND) requires:
   •   one-to-one or additional staff time
   •   specialist equipment
   •   tailored training
   •   liaison with external agencies

Although there is a SEND inclusion fund, it is often limited and inconsistent,
leaving settings to subsidise inclusion themselves.

Even on staffing levels, official surveys raise alarm bells
   •   The number of registered childcare providers fell by 1% between 2024 and 2025.
   •   Staff vacancy times remain long,
with many providers advertising roles for several months before filling them.

This reflects a workforce under pressure and supports the conclusion that funded hours alone aren’t enough to maintain a stable, high-quality childcare sector.

Government funding for early years, widely promoted through entitlements like 30 free hours, is a significant policy tool. But official funding tables and provider surveys show that these funded hours are not fully funding the cost of running childcare at the level families and regulators expect.

Funding pays for the hours.
It does not properly fund:
   •   leadership and management
   •   core operational costs
   •   compliance with health and safety
   •   proper staffing conditions
   •   professional development
   •   essential consumables and waste disposal
   •   real resource-rich learning environments

Until funding reflects the full cost of high-quality early years provision, including all of these hidden or unfunded costs, nurseries will continue to struggle financially, pass costs to parents, or reduce services and quality in response.