Liverpool City Council, which was awarded £1.7m each year from 2009 to 2011 in Early Years Capital Grant funding, has been told by the Department for Education that this year it cannot carry over unspent budgets from previous allocations into current projects.
The council said that 18 settings that were due to receive a total of £546,000 for improvements to their facilities will not receive the funding. A further £500,000 which had not yet been allocated will also be clawed back by the DfE.
The local authority has signed contracts with a further 28 private, voluntary and independent settings which could result in a potential deficit of up to £552,000 if the projects go ahead as agreed.
Deputy council leader Paul Brant said, 'The Government's decision to slash this budget halfway through the year has left us having to unpick a mess created through no fault of our own. Not only does this mean that nurseries and playgroups will lose out on vital funding to improve the learning experiences of children, but we are now faced with having to find up to half a million pounds that we simply do not have in order to cover the funding that has been slashed.
'We are asking the Government to review our allocation to cover the costs we are likely to have to incur. We are also in touch with all of the affected organisations to see if we can find a way forward.'
The council has written to the DfE to appeal the decision.
A spokesperson for the DfE said, 'We have left 2010/2011 capital funding untouched, but ministers were clear we could not allow all unspent cash from previous years to be spent this year. It is for local authorities to be accountable to their communities for the decisions they take.'