House of Commons - The Early Years Single Funding Formula - Children, Schools and Families Committee

The Early Years Single Funding Formula - Children, Schools and Families Committee Contents

2 Early years and funding: the road towards a Single Funding Formula

Profile of the early years education and care sector

5. There are almost 39,000 early years settings authorised to deliver the entitlement to free early years education and care.[9] The vast majority of these are run by private, voluntary or independent (PVI) providers, typically pre-school playgroups or daycare centres. They may be run as commercial, profit-making ventures or merely on a break-even basis. Some own or lease their premises; but many rely upon the use of community buildings such as village or church halls. A small proportion of early years education and care is provided by independent schools offering nursery classes. 65% of full daycare providers are from the private sector, and the underlying trend is for daycare provision to increase: numbers of daycare providers were 77% higher in 2008 than in 2001. Meanwhile, the number of 'sessional'[10] providers has fallen by 39% since 2001. This is attributed largely to the increase in demand from parents for full day care.[11]

6. There is also a sizeable "maintained" sector, operated on behalf of local authorities. Maintained early years settings might be maintained nursery schools (numbering about 450) or nursery units attached to primary or infant schools (6,700).[12] In January 2009, 78% of four year olds and 37% of three year olds took up free places at either maintained nursery or primary schools.[13] Maintained nursery schools, unlike nursery units in schools, have their own premises, head teacher and governing body; but they do not have nursery units' scope to share administrative costs. Staff costs are generally high in comparison to those at PVI settings: teachers at maintained settings are paid using teacher pay scales, non-teaching staff are paid according to local authority pay scales, and the costs of employer contributions to the local government pension scheme may well be higher than those paid to alternative schemes by PVI providers.[14]

7. Some areas (particularly in northern England and in inner city areas) have a strong tradition of maintained provision. Many maintained nursery schools were deliberately established in areas of social deprivation.[15] Numbers of these have nonetheless dwindled over the years: they have high cost per child ratios, for reasons which we explore later in this Report, and local authorities are sometimes accused of trying to close them in order to make financial savings.

8. Some childminders are members of accredited networks and are therefore eligible for funding from local authorities to offer early years care under the free entitlement. Unlike other early years settings, childminders can offer flexible home-based care, at hours set to suit the parent.[16] In passing, we record our misgivings about the rather functional term "childminder", which does little to recognise the caring relationships which often exist between the adult and the child.

9. Staff costs at early years settings will vary according to the levels of qualifications held by staff as well as the number of staff required, which will in turn depend partly on the age of the children for whom education and care is provided. The Early Years Foundation Stage, which sets standards for learning, development and care for children aged up to five, prescribes minimum numbers of staff that must be present with children at any one time in early years settings. These are, in essence:

For children aged under two, there must be at least one member of staff for every three children, and at least one member of staff must hold a full and relevant Level 3[17] qualification and have suitable experience of working with children under two;
For children aged two, there must be at least one member of staff for every four children, and at least one member of staff must hold a full and relevant Level 3 qualification;
For children aged three and above in registered early years provision (including independent schools), there must be at least one member of staff for every eight children and at least one member of staff must hold a full and relevant Level 3 qualification. If a person with Qualified Teacher Status, Early Years Professional Status or any other suitable full and relevant Level 6 qualification[18] is working directly with the children between 8.00 am and 4.00 pm, the minimum is relaxed so that there needs to be at least one member of staff for every 13 children;
For children aged three and above in maintained schools and nursery schools (except for children in reception classes), provision in each class or group must be led by a 'school teacher' as defined under statute,[19] there must be at least one member of staff for every 13 children, and there must be at least one member of staff with a full and relevant Level 3 qualification.

These requirements have statutory force and are set out in greater detail in the Early Years Foundation Stage Statutory Framework.[20]

10. Provision for children aged three or above in early years settings in schools is inspected according to the main school inspection framework, usually by Ofsted in discharge of its duties under section 5 of the Education Act 2005 but sometimes by other inspectorates for schools in the independent sector.[21] Provision for children aged under three in early years settings in schools and for children aged up to five in any non-school setting must be registered with Ofsted and is inspected for compliance with the requirements of the Early Years Foundation Stage, under section 49 of the Childcare Act 2006.

11. SureStart Children's Centres in the 30% most deprived areas in Englandlargely those established under Phases 1 and 2 of the children's centre programmeare required either to offer or to provide access to integrated early education and care for 10 hours per day, 5 days per week, 48 weeks of the year. These settings incorporate other early childhood and family services, including health services, parenting support and access to Jobcentre Plus services. SureStart Children's Centres established under Phase 3 of the programmeleading towards universal provisionare under no obligation to offer early years education and care, although they may do so if there is sufficient demand locally.

The cost to users

The entitlement to free early years education and care

12. Some early years education and care is free to parents and carers. In September 1998, all four-year-olds in England became entitled to a free childcare place for 33 weeks of the year.[22] In April 2004 that entitlement was extended to 3 year-olds, and in April 2006 the number of weeks in which the free entitlement was to be offered increased to 38. The entitlement is currently for 12.5 hours per week, available to children from the term after their third birthday to the term after their fifth birthday, at which point they enter compulsory full-time education.[23]

13. The Government now intends to extend the free entitlement to 15 hours per week for all 3 and 4 year olds, from September 2010. In some local authority areas that extension has already been in place for a year or more on a pilot basis; and all local authorities were expected to begin offering the 15 hour entitlement to their 25% most disadvantaged three and four year old children from September 2009. The White Paper on Social Mobility published in January 2009 announced plans for free early learning and childcare places to be made available to the 15% most disadvantaged two year olds nationally, as a first step to universal availability for all two year olds.[24]

14. Parents can take up as little or as much of the entitlement as they choose. In January 2009, 92% of three year olds and 98% of four year olds were taking up at least some of that entitlement. 53% of three year olds took up free entitlement at private and voluntary providers and 3% at independent schools; 37% of three year olds were benefiting from free early education at maintained nursery schools or nursery classes attached to primary schools. For four year olds, the balance is different: 78% of four year olds took up free places at either maintained nursery or primary schools.[25] Providers are barred from charging top-up fees for education and care under the free entitlement or from making access to the free entitlement conditional on take-up of 'paid-for' hours.[26]

15. Alongside the increase in the number of hours to be offered free of charge, the Government also seeks to help working parents by increasing the flexibility of provision under the free entitlement. This might entail, for instance, the availability of longer sessions taken over fewer days, or extending provision through lunchtime or to include breakfast time, or availability over more than 38 weeks in the year (described by the Government as a "stretched entitlement").[27] The Government does not expect that all providers will necessarily move to such patterns of provision: it envisages that clusters of providers would, between them, offer flexible provision in response to parental demand.[28] One consequence might be that the proportion of children taking up their entitlement at more than one provider is likely to increase. Later in this Report, at paragraph 68, we question whether greater flexibility of care is always in the child's interests.

Costs outside the free entitlement

16. For early years education and care not covered by the free entitlement, the average fee charged by full day care providers overall in 2008 was £3.50 per hour, and the average charged by sessional providers was £2.30 per hour.[29] However, day care fees can be significantly higher where market conditions permit.[30]

How early years settings are currently funded

17. The entitlement to 12.5 hours' free early years education and care is funded centrally through the Dedicated Schools Grant.[31] The Grant is calculated and allocated to local authorities according to the number of children aged between 3 and 16 identified by the January Pupil Census[32] and Early Years Census[33] as attending school or an early years setting in each local authority area. At the time that the Early Years Single Funding Formula was first proposed, children attending ten sessions of early years education and care were treated as 'full-time' and attracted a full unit of funding; children attending between one and nine sessions were treated as 'half-time' and attracted only a half-unit of funding. Calculation of the Dedicated Schools Grant is now based upon pupil numbers and the total hours of attendance.

18. When allocated to each local authority, the Dedicated Schools Grant is a lump sum: no portion is identified or ring-fenced by the Government for early years provision. Each child attending an early years setting within a local authority area is funded at the same level regardless of any variations in the hourly cost to the authority of that attendance.[34]

19. A maintained setting is funded entirely by the local authority, from the Dedicated Schools Grant (DSG) (although local authorities can, in theory, top this up from council tax). Local authorities may fund maintained settings either on the basis of numbers of children in settings or on the basis of the number of places offered.[35] Budgets for maintained settings are finalised by the local authority before the start of the financial year and are not adjusted to reflect pupil number changes that take place during the year. This is to allow financial stability.

20. A setting in the PVI sector is likely to be funded partly by the local authority (to honour the entitlement to free provision) and partly through fees paid by parents. Funding is calculated according to participation rather than places; and the Department for Education and Skills noted in 2007 that many authorities used a single rate of funding per pupil for the whole of the PVI sector provision in their area and did not differentiate according to local circumstances (such as settings serving areas of high social deprivation).[36]

21. While the free entitlement to 12.5 hours education and care is funded through the Dedicated Schools Grant, the revenue costs of increasing that entitlement to 15 hours are to be met from ring-fenced grants through the Standards Fund[37] totalling £590 million over the three years from 2008-09 to 2010-11. A further sum of £642 million in capital funding over the same period has been allocated for more structural costs, for instance to improve outside play space and equipment, or to provide rest areas for children on the site for long periods, or to buy refrigerators to enable settings to provide lunches. The Department expects that most of the costs to providers in offering more flexible access to the free entitlement will be transitional and will not require ongoing funding.[38]

The rationale for a single funding formula

22. The Department for Education and Skills issued a consultation paper in March 2007, setting out a series of proposals to "facilitate" local authorities' work in commissioning early years provision. These proposals included options to reduce inconsistencies in the systems used for counting pupil numbers and for calculating funding for early years education and care in the maintained and PVI sectors. The most far-reaching of these was a single formula for funding all settings at a local level, using common criteria for all settings. The rationale was summarised by the Department in interim guidance for local authorities published in 2008:

A further element of the rationale, articulated elsewhere,[40] was a desire for transparency in how settings are funded.

Inconsistencies in how providers were funded

23. The main differences in how providers from the maintained and PVI sectors were funded when the Single Funding Formula was proposed were:

Funding for maintained settings was often on the basis of places offered even if not taken up; but funding for PVI settings was on the basis of participation (places taken up). So there was more pressure on PVI settings to fill places; conversely, there was a risk that public money would fund places not taken up at maintained settings.
Take-up of places was counted once each year in maintained settings, at the January Schools Census and Early Years Census, and funding allocated on that basis could not be adjusted to reflect increases or decreases in participation through the year. Take-up of places in PVI settings was, however, measured termly, and funding was adjusted accordingly. So funding for PVI settings was more sensitive to levels of take-up; and a local authority could end up funding twice the free entitlement for a child that was moved mid-year between maintained and PVI settings. The Department for Education and Skills noted in 2007 that some local authorities did not allow children to divide their time between two providers.[41]

Transparency

24. In many local authorities, the levels of per pupil funding for settings in the PVI and maintained sectors have developed entirely separately;[42]and local authorities have not been required to justify or reconcile differences in funding levels. The value of a single funding formula in introducing greater transparency into early years funding was set out for us most clearly by the National Day Nurseries Association, which said that a single formula would use common funding criteria for providers in both the maintained and PVI sectors and therefore had "the potential to create a broadly level playing field across the various types and sectors of early years provision, leading to the overall pot of funding being divided up in a way more closely aligned with each provider's delivery costs".[43]

The decision to introduce a single funding formula

25. In June 2007, the Minister for Schools at the Department for Education and Skills announced by way of a Ministerial Written Statement that, in the light of responses to the consultation, the Department would press ahead with an Early Years Single Funding Formula, to come into operation from April 2010.[44] Introduction of the formula would be accompanied by a shift from place-led funding to participation-led funding for maintained settings.

9 Draft Code of Practice on Provision of the Free Early Education Entitlement for 3 and 4 year olds, DCSF, September 2009, paragraph 1.10 Back

10 'Sessional' provision is offered in blocks, often of 2.5 or 3 hours in either the morning or afternoon. Pre-school playgroups are prime examples Back

11 All figures from the DCSF Childcare and Early Years Providers Survey 2008, DCSF-RB164 Back

12 Figures from Childcare and Early Years Providers Survey 2008, DCSF Research Report RR164 Back

13 Provision for children under five years of age in England: January 2009, Statistical First Release 11/2009. Different sets of data are collated and published: the figures cited here count children only once even if they take up provision at more than one provider Back

14 Guidance: The Early Years Single Funding Formula for Maintained Nursery Schools, DCSF, October 2009 (available at http://www.dcsf.gov.uk/everychildmatters/earlyyears/fundingreform/fundingreform). See memorandum from Fran Munby, EYFF 20, paragraph 5.2 Back

15 Memoranda from Fran Munby, EYFF 20, paragraph 4.2; Chelsea Open Air Nursery School, EYFF 10, paragraph 3 Back

16 See memorandum from the National Childminding Association EYFF 50 Back

17 Level 3 is equivalent to A level, Vocational A level (Advanced GNVQ) or Level 3 NVQ Back

18 Level 6 is equivalent to an Honours degree (for example a BA in Early Childhood Studies) Back

19 Section 122 of the Education Act 2002 and the Education (School Teachers' Prescribed Qualifications, etc) Order 2003 Back

20 DCSF, May 2008, Appendix 2 Back