Memorandum Submitted by Daycare Trust
1. Daycare Trust, the national childcare charity, is campaigning for quality, accessible, affordable childcare for all and raising the voices of children, parents and carers. We lead the national childcare campaign by producing high quality research, developing credible policy recommendations through publications and the media, and by working with others. Our advice and information on childcare assists parents and carers, providers, employers and trade unions and policymakers.
Our submission is based on work with local authorities, parents and childcare
settings, and also on our recent research report, Quality costs, which
modelled the cost of providing high quality childcare throughout
3. The Early Years Single Funding Formula (EYSFF) was set in place because of calls from PVI providers to achieve parity and transparency in funding arrangements with the maintained sector. Amounts paid for the free entitlement typically varied between local authorities and between different parts of the sector. The need to ensure funding is set at an appropriate level becomes even more important as the number of hours offered through the free entitlement is increasing to 15 hours and delivered flexibly, thus reducing providers' opportunities to make up any shortfall through paid-for hours. This is particularly essential for sessional settings only offering three-hour sessions, for which the funding formula must meet the full cost of their provision to ensure their sustainability.
4. For the funding formula to be successful, there needs to be enough money in the system to begin with and the levels of funding need to be high enough to allow settings to be sustainable. The Quality costs report (enclosed) indicates that there should be enough money available for three- and four-year old places (although higher rates of funding would be required for two year olds). In Daycare Trust's Quality costs report, the hourly rates for three- and four-year olds (using a ration of 1:13) are calculated to be between £1.85 and £4.44 with current staff wages and qualifications, and between £2.94 and £6.17 under the high quality model (with 50% of staff qualified to Level 6 and 50% qualified to Level 3 and paid appropriately) However, Quality costs calculations do not make allowances for cross-subsidisation of fees, which undoubtedly does happen in all childcare settings. Without cross-subsidisation, and because of the staff:child ratio requirements, the fees for two year olds should be double those for three- and four-year olds, and the fees for children under two should be more expensive again. However in practice childcare providers' fee structures do not fully reflect this difference, although some may have a small price increase for younger children. Therefore the fees for babies and toddlers are subsidised by fees for three- and four-year olds in order to maintain affordable provision for families. Otherwise childcare for children aged two and under would be likely to be unaffordable for all parents except those on the highest incomes. Therefore, the government either needs to accept and fund some degree of cross-subsidisation, or (preferably) introduce further subsidy to support parents with the very high costs of childcare for young children.
5. The quality of provision is key. Research demonstrates that it is only high quality provision that has a significant and sustained impact upon child outcomes. It is important to recognise the quality of maintained settings and the role they have in leading practice and delivering high quality provision to disadvantaged communities. Maintained settings are more likely to be judged good or outstanding by Ofsted. Quality costs actually found that nursery classes in primary schools are a very cost effective way of delivering high quality early childhood education and care as they share the (normally high) cost of a headteacher amongst a larger number of children than nursery schools.
6. Part of the inequity of the funding of early years previously was that PVI settings were funded on a termly headcount basis, whereas maintained settings were funded on a place-led basis. It is right that nursery schools and classes move to a headcount funding system, in line with the PVI sector. Local authorities might need to provide support to enable nursery schools and classes to fill their places and remain sustainable. They might also need to develop their provision to be more useful to families, particularly working parents, for example providing childcare outside the normal hours of nursery school, (ie out-of-school clubs) or working with childminders to provide wraparound care.
7. Disadvantaged areas may need additional funding in order to properly support the children in their area, as the provision is likely to be more expensive (e.g. higher staff: child ratios to offer additional support to children) and parents are unlikely to be able to pay for provision outside of the free entitlement, so it is more difficult for settings to make up any shortfall. This is why PVI settings are less likely to be able to operate sustainably in disadvantaged areas and why there is a requirement for a disadvantage supplement - although how this is applied will vary between local authorities. It is important those childcare and early years settings in disadvantaged areas are able to attract a higher funding rate so that children are given the benefits that come with attending high quality and sustainable early years settings. The deprivation supplement might need refining in some cases to ensure it delivers funding to those settings that need it. In the Quality costs report, we allowed for the additional costs of provision in disadvantaged areas through higher staff: child ratios.
8. As has been discussed above, the maintained sector, ie most children's centres, nursery schools and classes, does provide high quality provision and often in disadvantaged areas. Many of these settings, particularly nursery classes, will see a reduction in funding because of the EYSFF. We would concur with the Minister for Children and Families, who in her letter to local authorities outlined the importance of retaining nursery schools and classes, and stated that she places strong importance on "ensuring the funding of these schools remains viable and they can continue to deliver the same high standards of provision."
9. Some media stories have been highlighting the fact that because of the introduction of the EYSFF, funding for full time places in maintained settings (normally used for children from disadvantaged backgrounds) is being withdrawn. Spending on the EYSFF does not have to be the only funding on early years entitlement and we know of some local authorities who continue to fund additional hours of early years provision from other parts of the Dedicated Schools Grant. It may be that local government is implementing strategic decisions about reducing the number of hours funded in early years (although not below the 15 hour requirement) and using the EYSFF as the reason, while it is perfectly valid for local authorities to fund provision over and above the 15 hours if they choose to. Indeed, we would encourage local government to spend more on early childhood education and care, as spending on young children gives the greatest return for public investment, leading to better outcomes for children and reduced spending on other elements of the welfare state.
10. Local authorities have been working hard on this process - some have been more proactive than others, some still have some work to do before finalising their funding formulae. But despite the difficulties in establishing the cost basis for the formula, most, if not all, would not want to discard all the important work achieved through this process. Formulae may need refining, but we believe that completely changing the process is unnecessary and unhelpful.
 Not published on Committee's website. See www.daycaretrust.org.uk/pages/published-research.html