Early years funding is likely to fall in real terms by 8% to 2024, according to the Institute for Fiscal Studies.

In a new report, the think tank warns that while the early years budget is due to rise in the coming years to £3.75 billion a year, that increase will be partially wiped out by soaring inflation.

The funding, which covers the 15 hours entitlement to early education and childcare for all three and four-year-olds – as well as 30 hours for the children of working parents, will likely be squeezed as childcare providers’ costs also rise.

The study, which was funded by the Nuffield Foundation, found that the rising costs for childcare providers will mean that the total funding for the free entitlement will shrink by 8% by 2024–25 compared to 2021–22.

Very real cost pressures on childcare providers and families make early years provision for all pre-school children much more precarious

The IFS notes that even with a diminishing population of young children, core funding per hour is likely to be on a “downward path” in real terms.

Elaine Drayton, who authored the report, said: “Over the past decade or so, the Government has prioritised the early years above other stages of education, rolling out new childcare entitlements for disadvantaged two-year-olds and for three and four-year-olds in working families.

“This has meant increasing spending on free childcare hours while other public services have seen cuts.”

But she warned that the costs facing childcare and early years providers have “been rising faster than economy-wide inflation over the last few years, but they face an even steeper rise in the coming years”.

“That will leave Government funding for the free childcare programme much lower than had been intended when the budget was last set in 2021,” she said.

“Very real cost pressures on childcare providers and families make early years provision for all pre-school children much more precarious,” said Josh Hillman, director of education at the Nuffield Foundation.

Elsewhere, the report also found that while inflation has put pressure on the budget for free childcare hours, real-term spending on free childcare hours has more than doubled since 2009 – rising from £1.7 billion to more than £4 billion last year.

That sits in contrast to other areas of education, which have faced cuts.

The sector is crying out for more funding and support, including fully-funded pay rises which at least keep pace with inflation

Researchers also found that Government spending on childcare subsidies through the benefits system has fallen to around £640 million, a decline that reflects “a longer-term trend of falling spending through the benefit system, linked to less generous payments and reduced caseloads”.

The findings come as Government departments and the public sector are braced for another round of belt-tightening ahead of the Chancellor’s Autumn Statement on November 17.

Shadow education secretary Bridget Phillipson said that the IFS’s findings “simply reinforce the need for the new, modern childcare system that Labour will build in government”.

She said: “The falling value of childcare support means parents will face even higher bills or more nursery closure, all because the Conservatives crashed the economy.”

Kevin Courtney, joint general secretary of the National Education Union, said that the findings will come as “no surprise” to those who work in the early years sector.

He added: “The sector is crying out for more funding and support, including fully-funded pay rises which at least keep pace with inflation.”

A Government spokesperson said: “We understand global inflationary pressures are squeezing household finances and people are worried about covering the basics.

“We are committed to improving parents’ access to affordable, flexible childcare and are currently exploring a wide range of options to do this. We have also already increased funding to local authorities to increase the hourly rates they pay to childcare providers, and we’re providing further support for early years providers with their energy costs.”