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

5 Should the Government proceed with the Single Funding Formula?

The principle

101. The Minister for Children, Young People and Families gave evidence to us in December 2009, at a time when there was a great deal of uncertainty about the Single Funding Formula. She recognised that the implementation process had been difficult and that a delay was merited, but she was bullish about the principle of a single funding formula: "All of the feedback that we are getting ... is that the idea of having a single formula is the right thing, and the basic principles are the right thing".[203] Others, including representatives of providers and local authorities, also gave some support to the underlying principle, even if they had reservations about the method of implementation. The Chief Executive of Early Education, for example, saw "no problem with a single funding formula if it is equitable, if it raises the bar and particularly if it raises the quality across all sectors".[204] Nina Newell, an area manager for the Pre-School Learning Alliance, told us that "the feedback that I have had from providers is not that they disagree with the basic principles of the formula or that there should be transparency, but that they are concerned about the level of funding that they will ultimately receive".[205]

102. Tim Davis, an officer of Southampton City Council with a role in implementing the Council's single funding formula, told us that it "certainly has helped significantly to close some of the funding gaps between different providers of good quality and the maintained sector",[206] and he believed that it had offered a chance to replace an unsustainable method of funding PVI settings.[207] Jamie Lang, a finance manager for Sheffield City Council, also welcomed the opportunity to introduce a more flexible and responsive formula for PVI providers.[208] Others believed that the introduction of the formula had been a lever for quality improvement[209] and had enabled PVI providers to strive to develop the quality of their provision.[210]

103. This positive view of the Single Funding Formula was not universally shared. Some challenged the principle, describing the Formula as "a poorly thought out, irresponsible initiative",[211]or as "based on false assumptions",[212] or as "unsustainable for all".[213]Barbara Riddell, an early years consultant, maintained that it was a myth to assume that, because children in every early years setting were exposed to the same Early Years Foundation Stage curriculum, a single funding formula should be applied throughout, when in fact the child's experience in a childcare setting would be very different from that in an educational setting.[214] The NUT argued that the Single Funding Formula was fundamentally flawed as it "does not actually reflect the true costs of high quality provision but seeks to reduce all provision to a minimum standard, rather than genuinely rewarding and incentivising quality".[215]

104. It is widely accepted that "early years education and care" covers very many things, from informal home-based childcare to education in a school environment, and from care provided by someone with few formal qualifications to guided development provided by highly skilled and qualified staff with many years' experience. While the Early Years Single Funding Formula may have its faults, it can, if the underlying principles are applied carefully and consistently, be sufficiently versatile to fund all settings sustainably and in a way which respects and rewards the varying provision offered. It is undeniably more transparent than the unco-ordinated methods which it replaces. If greater stress is placed in future on using the Single Funding Formula as a way to improve and reward quality of early years provision, it should develop that provision over time in a way which brings substantial long-term benefits for children and parents. We do not believe that the concept of the Single Funding Formula is flawed.

105. A great deal of work has been done by local authorities to prepare single funding formulae: that work should not be abandoned without very good reason. Given the advantage of greater transparency, and the work done so far in gaining a greater understanding of costs and the economics of operating an early years setting, we believe that the Government, local authorities and providers should continue to work towards implementation of the Early Years Single Funding Formula throughout England.

Implementation: timetable and process

106. The introduction of the Early Years Single Funding Formula has been difficult both for local authorities and for providersperhaps rather more difficult than was generally foreseen.[216] Although the timetable for implementation seemed generous (and some witnesses assured us that they had been content with it),[217] it proved to be impossibly tight for others. Some local authorities were clearly struggling to produce and secure agreement on a viable formula in the time available, and even some of those that did succeed in doing so would have welcomed more time. Lesley Adams, Head of Integrated Services for Children and Families at Birmingham City Council, told us that she "would have liked to have had better, longer conversations with all of the sectors" and had felt "very rushed".[218] The Montessori Schools Association, in a written submission prepared before the decision to postpone full implementation had been made, concluded that the arrangements for the Early Years Single Funding Formula were "too uncertain and variable to enable the scheme to operate effectively from April 2010".[219]

107. Although the introduction of the Single Funding Formula is inextricably linked with the extension of the free entitlement from 12.5 to 15 hours, the conjunction of these two changes has been problematic.[220] The Minister herself accepted this.[221] Lesley Adams described the timing as "a great shame" and said that difficulties with the implementation of the new formula had distracted council staff from discussions on the extension of the free entitlement, which was in itself "quite exciting and challenging".[222] For maintained providers faced with the consequences of moving to funding by participation rather than by places, the impact has been especially severe. Jean Ensing, Chair of Governors at Bognor Regis Nursery School and Children's Centre, described the combination of policy changes as "like being in a box and all the sides are coming in".[223]

108. Another factor which frustrated progress was the mixed record of local authorities and providers in establishing a fruitful working relationship. The Government noted that engaging fully with providers had been a challenge for the pilot authorities, and it advised that "key learning points [from the pilots] have been that it is essential to persevere ... to help the different providers to understand the needs and aims of other sectors and to demonstrate progress and build trust".[224]This would suggest that local authorities' efforts to engage with providers were often not reciprocated; and we have already noted the poor response from many providers to local authorities' attempts to undertake surveys of the costs of offering the free entitlement. Whatever the reasons why many providers did not become engaged with the Single Funding Formulaand it may be that in many settings staff did not feel confident or able to spare the time to engagewe do not believe that local authorities should bear sole responsibility for that failure.

109. Given the difficulties faced by local authorities and early years providers in achieving such a major reform, the Government was correct in deciding not to press ahead with the introduction of the Early Years Single Funding Formula by all local authorities in April 2010. We suspect that the Committee's inquiry helped to focus minds on this decision. The year's delay in full implementation must be used to settle nerves and restore some stability in the sector, and to rework funding formulae where necessary. We welcome the chance for pathfinder local authorities to disseminate good practice. We say more about review of formulae below, at paragraph 125.

Safeguarding early years provision

Scope within existing funds

110. The main risk to be addressed before full implementation of the Single Funding Formula, in our view, is to the viability of maintained nursery schools which are of good or outstanding quality and which support other providers. Some local authorities have gone to considerable lengths to protect their nursery schools, using whatever scope they could, within the confines of the single funding formula, to channel funds towards them. For instance, the formulae adopted by Sheffield City Council and by Cambridgeshire County Council include an additional factor, applicable only to maintained nursery schools, allocating them a fixed lump sum towards headteacher salary costs.[225] Southampton City Council adopted a variant of this approach to funding its maintained nursery school which also serves as a children's centre: an hourly base rate of funding was set which was some way short of hourly costs, but that base rate was complemented by payments for other services commissioned separately from the children's centre.[226]

111. Another option may be federation or treating a nursery school as a hub for provision of other services. The Minister for Children, Young People and Families wrote to local authority directors of children's services in October 2009 suggesting that "where it makes sense to look at structural solutions, e.g. federation, to support the ongoing viability of maintained nursery schools, then sensitive consideration should be given to that in the longer term".[227] However, one consequence would probably be the loss of a dedicated, specialist headteacher to lead strategy and direction, described in one written submission as being "one of the main advantages of a nursery school".[228] The NUT warned that co-locations or mergers of nursery schools would lead to specialist early years teachers being replaced by people "who may have little early years or educational experience".[229]

112. We are also aware that local authorities have tried to stage funding reductions over a number of years, as recommended by the Government's practice guidance,[230] or have allocated transitional funding to bridge the gap.[231] Maintained nursery schools will not necessarily be the only beneficiaries of such an approach. Sheffield City Council has put in place extra funds to ensure that no provider loses more than £5,000 in the first year of the new formula.[232] According to the data collected by the Department from local authorities in November 2009 on their plans for implementation of the single funding formula, 42 out of the 104 local authorities which had provided relevant information expected to have transitional arrangements in place for three years or more. Eight local authorities were planning for transitional arrangements to be in place for fewer than three years; 29 would definitely have transitional arrangements but had yet to decide the details; but 25 said that they had no plans for transitional arrangements at all.[233]

A greater share of Dedicated Schools Grant for early years?

113. There are limits to what can be achieved without increasing the share of Dedicated Schools Grant allocated to early years education and care, and the Pre-School Learning Alliance told the Committee that if no extra money was available, "the consequences are that if you are going to pay Peter you have to rob Paul".[234] Darlington Borough Council likewise suggested that "it is almost impossible to ensure that maintained settings do not get a reduction in funding, introduce parity in the funding of all settings, introduce a deprivation factor, all within existing resources".[235] Others made similar points.[236]

114. Some witnesses suggested that allocating a larger proportion of the Dedicated Schools Grant (DSG) to early years provision was the only means by which local authorities could implement the Single Funding Formula and deliver the policy objectives set out for it. Tim Davis, representing Southampton City Council, told the Committee:

237

He subsequently added:

238

115. Any such increase in the proportion of Dedicated Schools Grant allocated to early years provision has to be justified and argued at the local Schools Forum against competing demands from the primary and secondary education sectors: that process was described by one witness as "a challenge",[239] and there were fears that the quality of learning at Key Stages 1 and 2 could ultimately be compromised.[240] Sheffield City Council nonetheless intended to follow this route,[241]and Birmingham City Council had reached the conclusion that more funding from the Dedicated Schools Grant would be needed "in order to do everything we are being asked to do and keep nursery schools open". However, it had yet to seek final agreement from the Schools Forum.[242] At a time when schools' budgetary constraints are expected to become much tighter, such negotiations will become harder. The prospect of an increase in funding for early years provision being met by a corresponding decrease in funding for primary or secondary school provision is not attractive, although this is largely a matter for local determination. Nevertheless, there is compelling evidence to show that a child's experience in its first years is key to its development, and we believe that the Government should re-iterate to local authorities the primary importance of properly funded early years provision.

116. However, in our opinion, the time has come for the Government to re-examine the boundary between early years funding and primary education funding. Little mention was made in evidence of the possible consequences of the recommendation by Sir Jim Rose, in his Review of the Primary Curriculum, that "the preferred pattern of entry to reception classes should be the September immediately following a child's fourth birthday ... subject to well-informed discussion with parents".[243] In making this recommendation, Sir Jim sought to reduce what he described as "considerable physical, cognitive, social and emotional differences" between children starting school, in particular those that might be related to age differences. We did not support this recommendation when first presented in Sir Jim's Interim Report, published in April 2009;[244] but it was accepted by the Government nonetheless and the School Admissions Code has been revised to reflect the change. However, the NUT pointed out that Sir Jim's proposals would reduce significantly the number of four year olds receiving the free entitlement and hence the funding which settings would receive.[245]

117. It seems to us that all early years settings face a drop in the number of four-year-olds taking up places. In some areas, strong competition for places at popular primary schools could make this decrease quite marked. Furthermore, four year olds who might currently be funded 'part-time' from the free entitlement will be funded 'full-time' either from individual schools budgets (for children entering primary school) or from early years budgets (for children whose parents choose for them to remain at an early years setting until they reach statutory school age). We note that the Government has committed to funding full-time provision (up to 25 hours) for children in the latter category.[246]

118. Constraints on public spending and difficult financial times lie ahead. If the Government's policies lead to greater take-up of the entitlement to free early years education and care, and to full-time rather than part-time funding for four-year-olds, at public expense, the Government should make a commitment to extra long-term core funding to allow for those extra financial demands.

119. The implementation of Sir Jim Rose's proposals to encourage entry to primary school in the September following a child's fourth birthday will have far-reaching consequences for early years funding. The distinction between early years and primary education is being blurred: some four-year-olds will be in school while others will be in early years settings. The former will be funded by local authorities according to the schools funding formula, the latter through the early years single funding formula. We question whether this is fair or logical, and we recommend that the Government examine whether a unified funding system should be introduced for all children aged from 2 to 11 years old.

Local inconsistencies

120. There is no single early years funding formula: each of the 152 local authorities has designed its own formula after a process of consultation and refinement. The result has been huge variation in hourly base rates and supplementary rates. The Department's data collection exercise in November 2009 indicated base rates ranging from £0.18 to £8.35 per hour, with a median hourly rate of £3.50.[247] It should be borne in mind that the Department's guidance on implementation of the formula advised that setting a low base rate and allocating a high proportion of funding through supplements was a perfectly valid approach,[248] and a minority of local authorities chose this option.[249]

121. Even within the limited sample of local authorities which gave oral evidence to us, the mandatory supplement payable to acknowledge deprivation ranged from 15 pence per hour in Sheffield to as much as £1.05 per hour in the most deprived areas of Hertfordshire.[250] The Department recorded a median deprivation supplement per child per hour of £0.20 per hour, although one authority had set a maximum hourly rate of £3.07. The proportion of early years funding budget allocated to deprivation supplements ranged from 0.1% through an average of 3% right up to 22.1%.[251]

122. We were told that one local authority was proposing to eschew optional supplements altogether on the grounds that they were "complex, costly and uncertain".[252] By contrast, another authorityHampshire County Councilwas reported to be proposing a flexibility supplement with a four-level scale of payment, a quality supplement with a four-level scale of payment, and a deprivation supplement with a five-level scale.[253]

123. This variety is both a strength and a weakness in the Single Funding Formula. In theory it will allow funding to respond to local priorities and greatest need, and decisions on the design of the formula are locally accountable.[254]On the other hand, inconsistencies between local authorities in their approach have led to discontent and claims that local authorities have interpreted Departmental guidance differently.[255] Certainly, we are aware from constituencies of cases where flexibility inherent within the Government's guidance seems to have been ignored or overlooked. There is also evidence of anomalous hourly rates. One witness claimed that in some local authority areas the highest hourly rate being proposed was for childminders:[256]on the face of it, this seems extraordinary, although it is likely that the base rate would be complemented by supplements favouring other forms of provision, for instance by recognising the costs of qualified staff.

124. Inconsistencies between local authorities' base hourly rates and their approaches to supplements for funding early years settings are not necessarily a bad thing: they may merely show necessary sensitivity to local circumstances and needs. However, there have clearly been some wayward and potentially damaging decisions by local authorities, and Departmental guidance appears to have been interpreted differently in some cases. We note the Department's advice that each single funding formula "will need to be kept under review as a matter of good practice", especially in the first few years.[257] Local authorities are also required to make their early years single funding formulae widely available once finalised: besides allowing providers an opportunity to comment, it will also allow easy external comparison.

125. However, the implications of the Early Years Single Funding Formula are so far-reaching that the Government should play a part in reviewing formulae, drawing attention to anomalies and re-iterating principles where necessary. We recommend that the Government review all early years single funding formulaewhether proposed or implementedby the autumn of 2010. In particular, the Government should assess:

— The use made by local authorities of the quality supplement, with a view to making it mandatory;

— The supply of cost information, with a view to requiring private, voluntary and independent settings to supply that information if they are to receive payments for provision under the free entitlement;

— The impact on Children's Centres, to inform the development of Phase 3 centres and the evolution of Phase 1 and Phase 2 centres; and

— Whether local authorities are setting formulae which assume unrealistic rates of take-up.

204 Q 9 Back

205 Q 11 Back

207 Q 44 Back

208 Q 74 Back

209 Jenny Spratt Q 44 Back

210 Lucy Connolly Q 103 Back

211 Headteacher, Willow Nursery School, Dunstable, EYFF 09, paragraph 17 Back

212 Independent Schools Council, EYFF 46, paragraph 21 Back

213 Save Our Nurseries, EYFF 40 Back

214 EYFF 01 and Q 1 Back