Memorandum submitted by Cambridgeshire County Council

 

1. INTRODUCTION

 

1.1 Following concerns expressed through an oral evidence session, the Children, Schools and Families Committee invited written submissions on

· The expected impact of new local funding formulae on providers of early years education and childcare services

· Difficulties which have been encountered in drawing up new funding formulae, and how they are being overcome.

 

1.2 Because of the strong evidence base underpinning Cambridgeshire's work on the Single Funding Formula, and the broad consensus secured for the Authority's approach through consultation, officers have prepared this submission to the Committee.

 

 

2 BACKGROUND

 

2.1 Early years provision in Cambridgeshire is predominantly delivered by the Private, Voluntary and Independent sectors (78%). Local authority maintained provision is offered in 6 nursery schools (8%) and 23 nursery classes in primary schools (14%).

 

2.2 Currently, maintained providers (nursery schools and primary schools with nursery classes) are paid through their annual budget, 80% on places offered, and 20% on actual take-up based on the January pupil count. Private, voluntary and independent providers are paid on a single County rate of £3.38 per hour, each term, entirely on the actual take-up of places.

2.3 Officers from Cambridgeshire Children and Young People's Services have worked with a Reference Group of early years providers in developing an understanding of providers' costs, and establishing a model of agreed activity which should form the basis of funding provision. This model was then used in conjunction with data on rates of pay and other costs for different types of provision to identify appropriate funding levels for:

· Maintained Nursery Schools

· Maintained Nursery classes

· Pre-schools

· Full Day Care providers

· Childminders.

 

2.4 The Reference Group contributed to the development of formula proposals for consultation with providers.

 

 

 

3 CONSULTATION PROCESS AND FEEDBACK

 

3.1 Consultation took place with all early years providers over the period July- October 2009. The consultation comprised:

· A discussion paper on the principles which should underpin the formula (early July).

· An exemplification of the funding levels under the formula for different providers (early September).

· Four briefing sessions for providers (late September).

 

3.2 The consultation sought views on the following areas:

· The elements of provider cost to include in a formula.

· The level of cost incurred by different types of providers.

· The principle of differentiated rates for different provider types.

· The incorporation of a premises factor for pre-schools to account for variations in cost (and how the Authority should evidence this).

· The inclusion of specific incentives for staff qualifications or other measures of quality, and whether the formula should offer a specific quality incentive.

· The principle that offering flexibility in delivery genuinely incurs additional costs for providers, and what flexibility options should be identified.

· The use of the Income Deprivation Affecting Children Index (IDACI) scores to allocate funding to certain providers in respect of deprivation, and whether there might be other measures of deprivation more appropriate to early years provision.

· How the transition to a funding formula should be managed.

 

3.3 Providers were sent a response form and were invited to respond by post or e-mail by 8 October 2009. In all, ninety written responses were received (representing around 25% of providers) and eighty people attended the briefing sessions.

 

3.4 Key findings from the consultation include:

· A general recognition that different types of providers incur different levels of costs, with variations of opinion over the reasons for this.

· Agreement that offering flexibility incurs additional staffing and administration costs for providers, whilst recognising that it also presents challenges for funding and quality.

 

3.5 Key issues and concerns raised in the consultation with providers were:

· A desire for the formula to reflect quality, despite the practical difficulties of achieving this.

· Concern that anomalies in pre-school premises costs were not being addressed through any specific factor.

· Concern from pre-school providers that their sector was being penalised for its low historic cost base, reflected in a lower hourly rate.

· Questions over the treatment of childminders on a par with full day care providers, given their potential to operate with lower overheads from a home base.

At its meeting on 23 October 2009, Cambridgeshire Forum received feedback on the consultation and raised the question of whether the enhanced hourly rates, especially for full day care providers, reflected an element of profit.

 

3.6 The issues and concerns raised have been given detailed consideration. The rationale for the approach to each one is given below:

 

Issue	Rationale
No inclusion of specific incentives for staff qualifications or other measures of quality	There is no agreed single specific measure of quality or a clear incentive structure; The decision was taken to maximise the base funding rate for all providers in order to support sustainability
No specific premises factor for pre-schools to account for variations in cost	Insufficient confidence in provider data; decision to maximise base rate for all providers in order to support sustainability
Pre-school (voluntary) sector is being penalised for its low historic cost base	No provider is being penalised; providers with higher costs will receive higher rates. Further work will be undertaken to determine the extent of the sector's reliance on fund-raising for core costs.
Treating childminders on a par with full day care providers	Childminders can only accommodate limited numbers of funded children, and this can impact on their capacity to take other children, affecting their potential income.
Enhanced hourly rates for full day care providers reflect an element of profit	Full day care provider costs are not met by existing county rate; some cross-subsidise funded places, others charge top-up fees via extended sessions. The proposed rate is intended to cover costs and eliminate top-up fees, so that parents can access funded provision free of charge.

 

 

4 FUNDING FORMULA PROPOSALS

 

4.1 Cambridgeshire's Single Funding Formula proposals are being presented to

the Council's Cabinet on 15th December 2009 for consideration and approval. This section describes the proposals being put forward.

 

4.2 The starting point for the formula is an hourly rate per child for each type of provider. It then provides an enhancement for deprivation at two levels, based on the home neighbourhoods of children attending provision, to reflect social need. There is a further element to reflect additional costs incurred by providers in offering flexible hours to meet the needs of families.

Early Years Single Funding Formula Hourly Rate Summary[1]
All amounts are per hour per child	Maintained Nursery Class	Maintained Nursery School	Pre-School	Full Day Care	Child-minder
Initial Base Rate	£3.85	£4.53	£3.27	£4.23	£4.23
Protection	-	-	£0.21	-	-
Total Base Rate	£3.85	£4.53	£3.48	£4.23	£4.23
Deprivation enhancement (none / low / high)
Low	£0.11	£0.15	£0.10	£0.14	£0.14
High	£0.23	£0.29	£0.21	£0.27	£0.27
Flexibility supplement[2]
Range	£0 - £0.46	£0 - £0.54	£0- £0.39	£0 - £0.51	£0 - £0.51

 

4.3 Cambridgeshire's formula will fund children based on actual attendance, not on a specific number of places. It also includes a lump sum for Headteachers in maintained nursery schools, recognising the legal requirement for nursery schools to have a Headteacher and the difficulty of modelling this element of cost within a formula.

 

4.4 The formula includes an enhancement to the hourly rate for pre-school providers to provide funding protection at a rate equivalent to the planned County rate for 2010-11. The analysis of providers' costs shows the cost per hour to these providers to be, on average, lower than the County funding rate. However, the reported experience of the vast majority of voluntary providers is that they do not generate a surplus, and even rely on fund raising to break even. In evaluating the impact of the formula, there will be a focus on voluntary sector cost data.

4.5 The formula does not include an enhancement for quality of provision, nor a specific premises element to take account of variations in premises costs in pre-school provision.

 

 

5. SIGNIFICANT IMPLICATIONS

 

5.1 Reports to Cambridgeshire County Council's Cabinet are required to identify significant implications under key headings. The implications identified by officers of implementing the Single Funding Formula are detailed in this section.

 

5.2 Resources and Performance

 

The following bullet points set out details of significant implications identified by Council officers:

 

a. Finance

· The creation of a formula will require funding from the Nursery Schools Quantum, the Primary Schools Quantum (for nursery classes) and early years funding to be combined into a single funding pot of around £12.8m, with additional specific grant of around £3.4m covering changes to the free entitlement

· Excepting the grant mentioned above, there is no budgetary provision for increased costs arising from the introduction of a formula. Any funding increases for settings as a result of the formula will therefore have to be balanced by decreases for other settings.

 

b. Risk

· Changing the approach to funding distribution creates some risk for providers in terms of sustainability. This has been addressed through protecting rates for the lowest paid providers. It is also proposed that the formula be reviewed, either in September 2010 (if funding levels post April 2011 are clearer), or in April 2011, which would give more time for the formula to bed down.

· There is a risk to the local authority should there be a significant shift to higher funded provision. This is mitigated by the range of other factors influencing parental choice, and by the supply of childcare in the County, which closely matches demand in most areas.

· Uncertainty over future levels of budgets may create a risk for both the local authority and providers.

c. Performance

· Early years provision is critical to the delivery of the Early Years Foundation Stage, on which the local authority is judged. Sustainable funding levels are a prerequisite for effective delivery of the Foundation Stage.

 

5.2 Statutory Requirements and Partnership Working

 

The following bullet points set out details of significant implications identified by officers:

 

a. Statutory timescales

· Failure to introduce a formula by April 2010 would mean the local authority does not meet its statutory requirements. An early review of the arrangements would enable any residual concerns to be addressed.

 

5.3 There are no significant implications for the following categories:

· Climate Change

· Access and Inclusion

· Engagement and Consultation

 

5.4 There is a risk that flexible provision may work in favour of those parents who have better information about the availability of places, and register their preferences early. However, this risk is inherent in the present system of sessional places as well, and can be mitigated by simple, clear and timely information to families.

 

5.5 The formula has been designed taking into account the views of voluntary sector providers, whilst recognising that funding constraints do not allow for significant additional resources to support voluntary sector provision.

 

5.6 Further consultation will take place with maintained sector governors and with all providers implementing extended and flexible early years provision from September 2010.

 

6. IMPACT AND CHALLENGES

 

6.1 Section 5 identifies the main implications for Cambridgeshire County Council in implementing the Single Funding Formula. The tables below summarise the impact on providers and the main challenges faced, and how these have been addressed.

 

6.2 Impact on Providers

Provider type	Impact
All providers	All providers have an incentive to consider more flexible delivery, within a clear set of options established by the local authority (see Appendix).
Private, voluntary and independent providers	Full day care providers and childminders will be able to offer more stand-alone places due to a funding level more reflective of costs. We anticipate parents will be able to access a wider range of full day care provision without top-up fees or restrictive session lengths.   Sessional pre-schools will be able to continue to operate due to a protected base rate.
Maintained Nursery Schools	Limited impact as occupancy levels are high, and headteacher costs secured through a lump sum. Some issues around additional specific grant funding streams not available to PVI providers (though these are excluded from the formula).
Maintained Nursery Classes	Marginal impact where occupancy levels are low. Protection at 95% of previous funding will provide short-term sustainability whilst considering longer-term options.

 

6.3 Challenges

Challenge	How addressed
Alignment of maintained and PVI funding arrangements       Alignment of maintained and PVI funding arrangements (cont.)	Dedicated project management for three- and four-year-old funding initiatives.   Strong and sustained joint working between early years and schools' finance officers.   Formation and joint working with a Reference Group of early years providers, including maintained, private, voluntary and independent providers   Confidence to raise questions and share information regionally and nationally.
Juxtaposition of different initiatives (especially Single Funding Formula and Extended Free Entitlement) to different timescales	Separate projects under common leadership and direction.   Clear communication with providers through written guidance and face-to-face briefings. Differentiation of the separate projects through distinct branding and communication strategies.
Incentivising quality	Strategic decision to protect base rate pending a common view of most appropriate quality measure and funding mechanism   Strong local authority quality assurance framework for PVI providers built into existing arrangements.
Ensuring sustainability / implementation in a tight financial context	Strategic decision to protect base rate for all providers   Optimised use of specific grant to implement flexible free entitlement.
Lack of clear models for formula development / timely guidance on approach	Extensive modelling over a period of time.   Analysis of cost data from providers.   Development of a hybrid approach using actual cost data within an activity led model developed for maintained provision.   Validation of the model with Reference Group and individual providers.
Wide variations in premises costs within voluntary sector	Not reflected in formula at this point. To be addressed through analysis of improved provider cost data in the future.

 

December 2009

Element of flexibility	Explanation/example	% Premium	Potential supplement above basic NEF hourly rate £3.48 *	Suggested applicability	Not eligible
No flexibility	Open 5 x 3-hour sessions per week	0%	£0.00	Sessional pre-schools with strict constraints on premises	Settings open fewer than 3 days per week
Session flexible	Open 9-12 /12-3 / 9-3 for 5 days; parents can choose up to 5 x 3-hour sessions within opening times	3%	£0.10	Maintained nursery classes; sessional pre-schools	Settings open fewer than 5 days or 20 hours per week
Core hours	Open 9-3 for 3 or more days per week, or 9-1 5 days per week; flexible hours around one or more "core periods" of 2 hours maximum (e.g. 9:30-11:30, 12:30-2:30)	6%	£0.21	Maintained nursery classes; sessional pre-schools , extended pre-schools, private nursery schools	Settings open fewer than 5 days or 20 hours per week
Flexible limited opening	Open 9-3 for 3 or more days per week, or 9-1 for 5 days per week; flexible choice of hours (2 - all day) within opening times	6%	£0.21	Sessional pre-schools, extended pre-schools / day nurseries with constraints on premises	Settings open fewer than 20 hours per week
Flexible school hours	Open 9-3 for 5 days per week; flexible choice of hours (2 - all day) within opening times	9%	£0.31	Extended pre-schools, maintained nursery schools	Settings open fewer than 30 hours per week
Fully flexible	Open 7 or more hours per day, 5 days per week; flexible choice of hours (2 - 10) within opening times	12%	£0.42	Full day care facilities, childminders, extended schools with integrated care	Settings open fewer than 35 hours per week

Appendix 1

FLEXIBLE FREE ENTITLEMENT - PHASE 2 (From September 2010)

Flexibility Bands and Rates (subject to confirmation)

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[1] The free entitlement is 12.5 hours per week for 38 weeks, rising to 15 hours per week for 38 weeks for all children from September 2010. The entitlement commences from the term after the child's third birthday, until the child enters school.

[2] Flexibility supplements will be introduced for all providers from September 2010. Details of the nature and level of the supplements to be offered are shown in Appendix 1.