A £75 million expansion grant will be distributed to nurseries and childminders in England to help increase places ahead of the full rollout of funded childcare.

The early years pupil premium (EYPP) will also be increased by around 45% – to up to £570 per eligible child per year – to help disadvantaged children in areas who need it most, the Department for Education (DfE) has announced.

The announcement comes after the Prime Minister set out his ambition for 75% of children to reach a good level of development when they start school.

But childcare providers have warned that they could be forced to close or increase parental fees further as a result of national insurance (NI) and minimum wage rises set out in the Autumn Budget.

The DfE has said the new £75 million expansion grant will be allocated later this year to support early years providers to deliver the 35,000 additional staff and 70,000 places required across England ahead of September.

This is unlikely to allay any fears and local authorities must ensure this funding is passed on directly to providers

The expansion of funded childcare for working parents – which was introduced by the Conservative government – began being rolled out in England in April.

Working parents of children older than nine months are now able to access 15 hours of funded childcare, before the full rollout of 30 hours a week to all eligible families in September 2025.

The Government also announced on Tuesday that, on average, hourly funding rates for providers will rise to £11.54 for under twos, £8.53 for two-year-olds, and £6.12 for three- and four-year-olds.

But it added that hourly funding rates for providers in 2025/26 will vary between local authorities to reflect local circumstances.

Neil Leitch, chief executive of the Early Years Alliance (EYA), said the rates “fail to even come close to covering the cost” of NI changes and wage increases.

He said: “What providers needed was a commitment to mitigate the impact of these changes.

“Yet in reality, by not accounting for these changes in next year’s rates countless nurseries, pre-schools and childminders will be left with no option but to raise costs, reduce places or simply close their doors completely.”

Mr Leitch added: “Of course, while any funding increases are encouraging, long-term solutions – including a holistic staffing strategy and funding which reflects the real-terms cost of delivering high-quality early education and care – are absolutely key if the sector is to be both sustainable and able to meet ever increasing demand both now and in the future.”

Despite the inherited challenges we face, this Government will invest in our children’s future to break the link between background and success and build a system that gives every child the best start in life

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), said the new funding rates do not cover the statutory wage increases.

She said: “On top of this the National Insurance Contributions increase is going to cripple providers and the only way they can cover these costs is by increasing parental fees.

“Public sector providers will get reimbursed for their National Insurance Contributions increase, but the private and voluntary sector – which delivers three quarters of funded places – will not be helped at all.”

She added: “An additional £75 million has been announced to support the expansion, but there are no further details on how this money will be allocated.

“This is unlikely to allay any fears and local authorities must ensure this funding is passed on directly to providers.

“The combination of all these factors will be the last straw for some nurseries which will result in more settings closing rather than expanding to meet expected demand.”

Sarah Ronan, director of the Early Education and Childcare Coalition, said: “We are really pleased to see the Government back its Plan for Change with this hugely significant increase to the Early Years Pupil Premium – something that members of the Coalition have long called for.

“A reformed early education and childcare system won’t happen overnight but decisive action on educational disadvantage must be the starting point for that work.

“We welcome today’s uplift in the EYPP as a clear sign of the Government’s commitment to ensuring that all children get a fair start in life.”

Education Secretary Bridget Phillipson said: “High quality early education is the cornerstone of our promise to ensure tens of thousands of children are school ready every year, as part of the Government’s Plan for Change.

“Despite the inherited challenges we face, this Government will invest in our children’s future to break the link between background and success and build a system that gives every child the best start in life.

“The early years has been my priority from day one, because by giving more children the chance to start school ready to go, we transform their life chances, and the life chances of every child in their classroom.”