Parents who receive benefits or have children with SEND could save up to £350 a year on extra childcare costs under Government plans.
The Department for Education (DfE) is set to crack down on unspent council funding for free childcare hours which is not passed on to nurseries and childminders.
The money could be used to help disadvantaged and lower-income families pay for food at nurseries or transport to drop off their children.
Councils currently receive money for the Government-funded hours based on estimates, which is leading to underspends in areas where fewer parents are taking up the offer.
The unspent money is often used elsewhere to cover shortfalls in council budgets for other parts of the education system – particularly to fund education, care and health plans (EHCPs) for school-age children with special educational needs and disabilities (SEND), according to the National Day Nurseries Association.
The association previously found that 75 per cent of 132 local authorities had underspends amounting to £65m at the end of 2023/24.
Eligible working parents of children aged nine months to four years in England have been entitled to 30 hours a week of free childcare during term time since September 2025.
Parents on certain income-related benefits or those whose children have an EHCP – which entitles SEND children to support – can get 15 hours of free childcare for two-year-olds.
But nursery providers say the Government funding rate does not cover the full cost of delivering the free childcare for parents, which has forced them to raise charges for meals and other extras such as nappies, sun cream or trips.
In a new consultation, the Government has proposed that councils pass on more of the unspent funding to providers to help in particular disadvantaged families from 2027/28.
The Government said it was “important” that funding for the 15 hours was used to help families with barriers such as the additional cost of food at nurseries.
44 per cent of the lowest-income parents find it difficult to afford these additional charges, according to Ipsos polling for the DfE.
The DfE consultation pointed to areas such as Westminster and Southwark in London as examples where councils have successfully trialled using the unspent money to help disadvantaged families with food costs.
“Support with food costs can save parents at least £350 a year, and for families with multiple children, these costs can make a substantial difference to household budgets,” the consultation document states.
Low-income families are more likely to face irregular work patterns or transport issues in getting their children to nurseries and childminders, the DfE said.
The Government believes that the underspent funding could be used to address this, for example in rural areas where transport options are more limited.
Jonathan Broadbery, policy director at the National Day Nurseries Association, said the Government’s plans could lower costs for parents by increasing the amount of funding that nurseries receive.
“There’s a knock-on effect to parents if there are fewer things that providers have to cover outside of the funded hours, either through the charges to parents for non-funded hours or through the charges that they have to make because so much of what they do isn’t covered by the funding,” Broadbery said.
Neil Leitch, chief executive of the Early Years Alliance, said: “It feels completely unjust that that money is not spent where it was destined to go.
“Anything that addresses funds being pulled away from providers who are entitled to it has to be a good thing.”
However, he said additional investment was needed to address the financial pressures facing the sector.
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