The funding shortfall for the flagship policy could lead to lower quality provision, with poorer outcomes for children and less choice for parents as the market shrinks, the think-tank warned.
Ministers have committed to increase free childcare hours for 3- and 4-year-olds in working families from 15 to 30 hours per week, the Extending the early years entitlement report stated. Around £365m has been allocated to fund 2017/18, the first full year of the scheme, rising to £670m in 2020/21.
However, the IPPR said that it had costed the policy at £1.6bn a year, £1bn more than the allocated budget for 2017/18.
The report also noted that the Scottish Government found a similar proposal would cost £880m plus additional capital funding, even though there are four times fewer eligible children in Scotland than England.
Report author Giselle Cory urged Chancellor George Osborne to announce additional funding in the upcoming Spending Review.
“The government should be applauded for its commitment to additional free childcare hours, but the drastic underfunding of the policy calls into question whether it can be delivered without driving down quality and choice.
When councils are already struggling to fund sufficient childcare provision on current hourly rates we know there is a problem: the £1bn shortfall in delivering the extension will make a bad situation worse.
“At a time when parents desperately need high quality care for their children, it is clear the current system is creaking at the seams even before it tries to cope with delivering extra free hours with less than a quarter of the cash we believe it requires. The government must prioritise properly funded childcare provision to meet demand, and ensure there that standards do not fall.”
She highlighted that ministers set the funding envelope for the scheme before the Department for Education had completed its review into hourly childcare provider rates.
Already, almost half of local authorities are struggling to find sufficient childcare provision for working parents, the IPPR found, and many providers claim hourly rates are too low to cover their costs.
Today’s analysis uses a static estimate of the cost of extending the free offer, and does not take into account potential savings that this extension could achieve by reducing the amount of childcare support claimed under tax credits or Universal Credit.
However, the think-tank highlighted Institute for Fiscal Studies research, which projected that these savings were likely to be small.
