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

3 Drawing up new formulae: principles and process

Core principles

26. The Department set out in interim guidance issued in July 2008 "Core Principles" to govern the development and operation of local authorities' single funding formulae. These were updated and re-issued in Practice Guidance issued in July 2009 and are reprinted below. Text added when the Core Principles were updated is shown in italics:

The development of an EYSFF should:
Support effective and efficient distribution of resources at the local level;
Facilitate greater flexibility of provision so that parents have greater choice in how they use the free entitlement;
Preserve diversity and choice in the market;
Incentivise improvements in the quality of provision and recognise the ongoing costs associated with quality;
Support the narrowing of achievement gaps and recognise the additional costs associated with children from deprived backgrounds;
Be clear and transparent.
With regards to the operation of the formula:
The same factors should be taken into account when deciding the level of funding for each sector;
Decisions must be transparent and any differences between the sectors should be justifiable and demonstrable;
The level of funding should be broadly cost-reflective and all the main cost elements should have been considered explicitly;
There should be no perverse incentives and any change in the formula must not endanger sufficiency of provision;
The formula must be based on common cost information from both the PVI and maintained sectors and all costs and public sources of incomes should be considered;
Settings should be funded on the basis of participation, not places or similar factors. Participation must be counted on a termly basis, at the least, and this will be required in regulation;
An additional factor to support sufficiency and sustainability will be allowed but this must not be used widely and must have clear criteria;
The formula must take into account the sustainability of all settings, giving sufficient stability to all sectors to plan for the future and improve quality;
Transition from the current funding mechanism to the future funding mechanism must be planned and managed carefully, and based on a clear impact assessment;
The application of the formula in different settings should be based on common operating principles wherever possible; All aspects of the proposed EYSFF must be the result of partnership working with all those involved, and final decisions on structure and operation of the formula should be made only after widespread consultation.

Source: Implementing the Early Years Single Funding Formula: Practice Guidance, DCSF, July 2009

Timetable

27. In July 2008, the Department's interim guidance on implementation of the new funding formula set out three stages of implementation by local authorities:

2008-09 Establish "a robust understanding" of costs

2009-10 Count on the basis of participation rather than places

2010-11 Full implementation (based on a "clear impact assessment" and underpinned by "appropriate transitional arrangements")[45]

The Government acknowledged that "there are no shortcuts in this process … the work is unlikely to involve simply taking part of an existing formula and assuming that it can be applied across the board… Local authorities will need to go back to first principles, work with representatives of all providers, and ensure that their formulae meet the whole spectrum of provision".[46] A detailed timetable, reproduced overleaf, was circulated to local authorities and published in the practice guidance issued by the Department in July 2009:[47]

Figure 1: Timetable for the Implementation of the Early Years Single Funding Formula

Source: Implementing the Early Years Single Funding Formula: Practice Guidance, DCSF, July 2009, section 3

Process

Establishing costs

28. The first step therefore was to establish costs. The Practice Guidance issued by the Department in July 2009 said that the Single Funding Formula "should be based on a detailed understanding of providers' costs in both the maintained and PVI sectors".[48] This was to be achieved through (i) a survey of costs, drawing upon data supplied by providers; and (ii) a "Typical Cost Model", devised by local authorities themselves, for use as a "sense check" against cost survey results. The Department saw these two approaches as "supportive of one another", and it recommended that local authorities use both in their work to understand providers' costs.[49] In drawing up a Typical Cost Model, local authorities were encouraged to refer to information from a wider range of sources, including the costing model developed by the National Day Nurseries Association.[50]

29. The Department identified two dilemmas which local authorities might face in drawing up Typical Cost Models:

Whether to use 'real' costs or 'aspirational' costs (i.e. the costs of the quality of provision which the local authority might desire). The Department advised that local authorities should "operate within known affordability constraints", which it expected would probably limit the level of aspirational costs;
Whether to attribute a cost to 'free' resources, such as volunteer staff. The Department recommended that free resources should be costed at the appropriate market rate, to ensure that provision would remain viable if the 'free' resource were ever lost.[51]

Moving towards counting on a participation basis

30. In order to allow funding calculations for 2010-11 to be based upon participation, local authorities were required from 2009 to count children on the basis of participation, rather than places, across all settings.[52] Local authorities could choose to move towards participation-led funding in 2009-10 but were not obliged to do so until 2010-11. In some cases, such as in very rural areas, where the child catchment was small and where funding on participation alone would not offer a sustainable basis for a setting, local authorities were permitted to assign additional funding to support sustainability. Local authorities were enjoined to use such funding "sparingly".[53]

Devising the formula

31. The Department envisaged that the basic structure of each new formula was likely to be:

Basic Hourly Rate + Hourly Supplements

x Number of hours
of participation

+ Other
supplements

This rate may
vary according
to the providers' cost structures
Additional amounts per hour for extra need or to recognise policy objectives such as improving quality The method of
counting the level
of participation
must be same for
all providers
In some limited circumstances (e.g. sufficiency) it may be appropriate to provide lump sum amounts

Source: Implementing the Early Years Single Funding Formula, Practice Guidance, DCSF, July 2009, paragraph 7.1

Supplements

32. The Department expected that local authorities would offer providers a higher rate per child per hour through supplements to the basic hourly rate, when certain criteria were met. Although a wide range of supplements was considered initially,[54] only two optional supplements were listed in the Department's practice guidance on implementation, issued in July 2009: quality and flexibility of provision. The Government specified that funding for deprivation was mandatory and that, therefore, local authorities should include a deprivation supplement.[55]

33. In considering possible supplements, local authorities were advised to consider:

Whether it was reasonable to distribute a high proportion of funding on one supplement;
Whether a low value supplement could actually help to achieve the intended policy aim and whether it was worth the complication of incorporating it; and
Whether supplements would lead to 'cliff edges', in which the gain or loss of a supplement could lead to sharp changes in funding levels.[56]

34. The Department suggested the following indicators as being suitable for underpinning a quality supplement:

Workforce qualifications
Ofsted inspection ratings
Membership of an approved quality improvement or assurance scheme, developed in conjunction with providers, combined with a continuous cycle of quality improvement
Well-developed self-evaluation processes... which include active plans for staff development and training.[57]

The Department also outlined two "broad approaches to designing a flexibility supplement":[58]

Offering an incentive to deliver different patterns of provision (this would normally entail moving away from 'sessional' provision); and
Recognising the additional costs of delivering flexibility.

Consultation

35. The guidance issued by the Department urged local authorities to consult widely and extensively with providers. It stressed the importance of early engagement with providers in all sectors, and local authorities were encouraged to establish a working group with representation from all sectors.

36. Formal approval for the final proposal is required from the local schools forum.[59] Local authorities with maintained nursery schools in their area are already required to appoint a maintained nursery schools representative to their local schools forum. Most local authorities also appoint an early years representative from the PVI sector; regulations have now been laid before Parliament to make this a requirement.[60]

Implementation timetable

37. Six local authorities agreed to pilot the single formula and implement it from April 2009: Hertfordshire, Somerset, Leeds, Rochdale, Croydon and Southampton. A further five local authoritiesDerby, Greenwich, North Somerset, North Yorkshire and Shropshirejoined the pilot subsequently. Nine out of the eleven pilot authorities succeeded in implementing their new funding formulae in April 2009,[61] and the Department's Practice Guidance on implementation of the single funding formula, issued in July 2009, drew upon the pilot authorities' experience.

38. The original intention had been for local authorities not taking part in the pilot to introduce the single funding formula in April 2010. However, in December 2009, the Minister for Children, Young People and Families advised us of her intention to delay full implementation by a year, in the light of feedback that some of these local authorities were struggling with the formula, that providers and parents were becoming increasingly worried about the impact which it might have, and that "perhaps only around a third of all local authorities may be in a secure enough position to proceed".[62] The Minister confirmed her intention in a Written Ministerial Statement issued on 10 December 2009.[63]

39. Some local authorities nonetheless maintained that they were ready to proceed with implementation from April 2010. The Department indicated that it would support those that were ready, and it invited applications from local authorities to become pathfinders in order to offer their expertise and practice to others. 56 local authorities were designated as pathfinders on 16 February 2010.[64] The Minister said in evidence that "we will seek in the intervening periodthe delay of a yearto get ourselves to a sensible position, working with local authorities and the PVI sector to have an implementation for everyone that will work".[65]

45 Implementation of the Early Years Single Funding Formula: Interim guidance, DCSF, July 2008, paragraph 1.2 Back

46 Implementation of the Early Years Single Funding Formula: Interim guidance, DCSF, July 2008, paragraph 1.5 Back

47 Implementing the Early Years Single Funding Formula: Practice Guidance, DCSF, July 2009, section 3 Back

48 Implementing the Early Years Single Funding Formula: Practice Guidance, DCSF, July 2009, paragraph 1.4 Back

49 Implementing the Early Years Single Funding Formula: Interim Guidance, DCSF, July 2008, paragraph 5.1 Back

50 Implementing the Early Years Single Funding Formula: Interim Guidance, DCSF, July 2008, paragraph 5.3 Back

51 Implementing the Early Years Single Funding Formula: Interim Guidance, DCSF, July 2008, paragraph 5.3 Back

52 Implementing the Early Years Single Funding Formula: Interim Guidance, DCSF, July 2008, paragraph 6.5 Back

53 For example, North Yorkshire County Council chose to weight the basic hourly rate by +75% if the setting was more than three miles from the nearest alternative and by +125% if there was no other provider within five miles. See Implementing the Early Years Single Funding Formula: Practice Guidance, DCSF, July 2009, paragraphs 2.3, 7.1 and 7.11 Back

54 Implementing the Early Years Single Funding Formula: Interim Guidance, DCSF, July 2008, paragraph 6.4 Back

55 Implementing the Early Years Single Funding Formula: Practice Guidance, DCSF, July 2009, paragraph 7.4 Back

56 Implementing the Early Years Single Funding Formula: Practice Guidance, DCSF, July 2009, paragraph 7.3 Back